Wednesday, March 24, 2010

New orders for durable goods rose for the third straight month in February as businesses rebuilt inventories by the largest margin in a year. The government said orders for long lasting manufactured goods rose 0.5% last month while the January figure was revised sharply upward to show a 3.9% increase.


Mortgage investors view the durable goods orders data as a leading indicator of manufacturing activity, which in turn provides a good measure of overall business health. In the strange world of the credit markets -- signs of improving economic conditions tend to create upward pressure on mortgage interest rates as investors anticipate an increased demand for capital to fund growth. When the demand for capital rises -- the attendant interest rates rise as well.



In a separate report the Commerce Department said the pace of new home sales unexpectedly fell by 2.2% in February. Most analysts had anticipated new home sales last month would improve modestly in February. The weather may have been a significant factor behind the outsized drop in new home sales, as much of the decline was centered in the Northeast. The pace of new home sales in coming months will likely remain subdued as the high jobless rate and extremely tight credit conditions continue to restrict demand for a while longer yet.



As they do every Wednesday, the Mortgage Banker's of America released their mortgage application index for the week ended March 19th. According to MBA, overall application activity dropped 4.2% from week earlier levels. Purchase application requests were up 2.7% while refinance applications slumped 7.1%. Refinance requests accounted for 65% of all applications and refi's represent 64.8% of the prospective loan volume. Looking further into the late spring and early summer months there are a number of reasons to believe the momentum of mortgage loan demand will improve. The pace of employment will likely prove to be upbeat enough to allay consumers' concerns while record-high affordability and a slowdown in home price declines will probably spur a large number of current "fence-sitters" to jump on the home buying bandwagon.



Uncle Sam will be splashing around in the credit market again this afternoon - looking to borrow $42 billion in the form of 5-year notes. The price for this security has fallen almost 100 basis-points since last week Tuesday. Traders love a deal - and the chance to buy such a high-quality, low-risk security as the Treasury's 5-year note at a deeply discounted price will likely prove hard to pass up. If this assessment proves accurate, this event will not likely influence the trend trajectory of mortgage interest rates one way or the other today.