Mortgage Rates Climb Sharply After Retail Sales Report

The U.S. economy is expanding, fueled by a renewed consumer optimism and increased consumer spending.

As reported by the Census Bureau, Retail Sales in February, excluding cars and auto parts, rose 1 percent to $335 billion as 11 of 13 retail sectors showed improvement last month.

February markets the 19th time in twenty months that U.S. Retail Sales increased on a month-over-month basis.

Unfortunately, what's good for the economy may be bad for Brooklyn, NY home buyers and mortgage rate shoppers. Home affordability is expected to worsen as the U.S. economy improves.

The connection between Retail Sales and home affordability is indirect, but noteworthy -- especially given today's broader market conditions.

First, let's talk about affordability.

Last week, the National Association of REALTORS® released its monthly Housing Affordability Index, showing that homes are more affordable to everyday home buyers than at any time in recorded history. For buyers with median earnings buying median-priced homes, monthly payments now comprise just 12.1% of the monthly household income.

The real estate trade group considers 25% to be the benchmark for home affordability. Today's payment levels are less than half of that.

The reasons why today's homes are so affordable are three-fold :

1. Home prices remain relatively low as compared to peak pricing
2. Fixed- and adjustable-rate mortgage rates remain near all-time lows
3. Average earnings are increasing nationwide

Rising Retail Sales, however, can derail the trend. This is because Retail Sales measures consumer spending and consumer spending accounts for roughly 70 percent of the U.S. economy. As the economy expands, the forces that combined to raise home affordability so high begin to wane. 

First, in a recovering economy, mortgage rates tend to rise and, throughout 2012 and 2013, home prices are expected do the same. Second, as average earnings increase, it can spur inflation which is bad for mortgage rates, too. 

Home affordability is at all-time highs today. But, in part because of February's Retail Sales data, we should not expect these levels to last. Mortgage rates are higher by 1/4 percent since the Retail Sales data was released -- roughly $16 per $100,000 borrowed -- and are expected to rise more throughout the spring home purchase season.

Retail Sales are up 6 percent from a year ago.

With Retail Sales And Consumer Confidence Rising, Home Prices Are Expected To Follow

The U.S. economy continues to show signs of a rebound.

According to the Census Bureau, Retail Sales climbed to $329 billion last month on a seasonally-adjusted basis, excluding automobiles. January's data marks the 18th time in 19 months that Retail Sales rose, a run that's increased total sales receipts by 11 percent.

This is big news because Retail Sales accounts for close to 70% of the U.S. economy.

In addition, consumer confidence is rising.

In a separate, joint report from the University of Michigan and Thompson Reuters, it was shown that consumer attitudes toward the economy and the future are improving, primarily the result of recent job gains.  

The Survey of Consumers posted its highest value in 12 months.

It is not a coincidence that Retail Sales and consumer confidence both made multi-month highs -- the readings are more than loosely linked. As consumers feel more confident about the economy and their personal prospects for the future, they're more likely to spend money on goods and services, which leads to an increase in consumer spending.

For the housing market, the ramifications are two-fold.

First, from the financing side, an expanding economy is linked to rising mortgage rates. This is because Wall Street tends to chase risk in a growth economy and the bond market offers little in the way of risk. As demand for bonds drops, then, mortgage rates rise throughout New York.

Second, rising consumer confidence can lead Brooklyn, NY home values higher, too.

Confident consumers are more likely than fearful ones to become home buyers. They're more likely to stop renting and start buying; more likely to list their home and "move-up" to something bigger; more likely to "take the next step".

So, as more buyers enter the market at a time when the national home supply is shrinking, the supply-demand balance in housing is shifting toward the sellers. This creates price pressures and should lead to higher home valuations in neighborhoods like Bedford Stuyvessant.

If you have plans to buy a home in 2012, the best time to buy may be now. Today's mortgage rates are low and so are the home prices -- a combination that's unlikely to last.

Home Affordability Set To Worsen On Thursday's Retail Sales Data

Consumer spending continues to rise nationwide, fueled by jobs growth and a rosier outlook for the U.S. economy. Unfortunately for mortgage rate shoppers |*STATE in % STATE**|, it may also lead to higher mortgage rates later this week.

Thursday morning, the Census Bureau will release its U.S. Retail Sales data for December. The report is expected to show an 18th consecutive monthly increase, with analysts projecting sales volume higher by 0.4 percent from November.

This would be double the increase from last month, which saw a 0.2 percent increase in Retail Sales.

The Retail Sales report tallies receipts collected by retail and food-service stores nationwide. When the sum of these receipts rise, it puts pressure on mortgage rates to do the same. The connection is straight-forward.

Retail Sales are the largest part of "consumer spending" and consumer spending accounts for the majority of the U.S. economy -- up to 70 percent, by some estimates.

As the economy goes, so go mortgage rates.

Remember: today's ultra-low mortgage rates have been partially fueled by weak economies -- both domestic and abroad -- going back 4 years. Stock markets have sold off as economies have faltered worldwide, leading investors to seek refuge in the relative safety of U.S.-backed mortgage bond market. The new-found demand for mortgage-backed bonds has helped drop mortgage rates to levels never seen in history.

When economic recovery is apparent, therefore, we should expect a mortgage rate reversal, and should expect for it to happen quickly. Stock markets should rise; bond markets should fall. Mortgage rates will climb. Rate shoppers will lose.

Last week's strong jobs report sparked hope for the U.S. economy. If Thursday Retail Sales data reveals similar strength, the risk in "floating" your mortgage rate may be too great. The safer play is to lock your rate today.

The Retail Sales report will be released at 8:30 AM ET.

Retail Sales Expected To Rise; Mortgage Rates Should Rise, Too

The American Consumer is alive and well, it seems.

Friday morning, the Census Bureau will release its Retail Sales figures for September. The report is expected to show an increase in gross receipts for the 15th straight month with analysts predicting a 0.6 percent increase from August.

The projected increase represents the largest jump in Retail Sales in six months and would likely lead mortgage rates higher for buyers in Brooklyn, NY and   nationwide.

The connection between Retail Sales and mortgage rates is fairly straight-forward. Retail Sales are the majority component of "consumer spending" and consumer spending represents the majority of the U.S. economy -- up to 70 percent, by some estimates.

And, as the economy goes, so go mortgage rates.

10 months ago, mortgage rates shot forward to start the year. This is because expectations were high for a strong economic rebound. Conforming and FHA rates crossed 5 percent at the time and were headed toward six.

By mid-April, though, it was clear that economic data was falling short of predictions. As a result, mortgage rates declined, kicking off the 2011 Refi Boom. Then, by August, on ongoing economic softness, mortgage rates in New York fell further, making new all-time lows.

Expectations for a recovery have returned. Rates are now rising.

Last week's strong jobs report sparked hope for the U.S. economy and investors have been voting with their dollars. Mortgage rates are now up 7 consecutive days and Friday's Retail Sales report could cement the trend.

If you're shopping mortgage rates today, there's risk in "floating". You may want to lock your rate before Friday's Retail Sales report drives rates even higher.

The Retail Sales report will be released at 8:30 AM ET.

Retail Sales Report Should Spell Higher Mortgage Rates For Wednesday

Consumer spending is alive and well, it seems -- unwelcome news for today's home buyers. 

Wednesday, the Census Bureau will release its March Retail Sales figures and the report is expected to show higher sales receipts for the 9th straight month. A strong reading like that should spell higher mortgage rates in Brooklyn, NY and nationwide.

The connection between Retail Sales and mortgage rates is fairly tight. Retail Sales are "consumer spending" and consumer spending accounts for the majority of the U.S. economy. The U.S. economy, of course, is a dominant force in setting the direction in which mortgage rates are headed.

For example, in 2010, it was a weak economy and murky outlook that helped drive mortgage rates to all-time lows. Since last year, however, the jobs market has started its recovery, monthly receipts have returned to all-time highs, and the Federal Reserve is revising growth estimates for 2011.

Not surprisingly, mortgage rates have reversed, too.

As compared to 6 months ago, conforming rates are higher by 0.750%. Home affordability across New York is taking a hit. Plus, the stronger the economy appears to be, the more likely for mortgage rates to climb more.

It's why tomorrow's Retail Sales report is so important. 

If you're under contract for a home, or even evaluating the merits of a refinance, there's a lot of risk in "floating" your mortgage rate. The more prudent plan is to find a rate at which you're comfortable with the payment, and lock it in.

And you may want to take that lock sooner than you had planned -- if only to protect your monthly payments. Once tomorrow's Retail Sales report hits, it may be too late. Especially if receipts rise for the 10th straight month.

The Retail Sales report is due for release at 8:30 AM ET.

Mortgage Rates Spike On Strong Retail Sales Data. Could 4 Percent Rates Be Done?

If consumer spending is a key to economic recovery, the nation is on its way.

Monday, the Census Bureau released national Retail Sales figures for October and, for the second straight month, the data surged past expectation. Last month's retail figures jumped 1.2 percent -- the largest monthly jump since March -- as total sales receipts climbed to a 2-year high.

Consumer confidence is rising, too. Though still below the long-term trend, confidence in the future up-ticked in October.

The current confidence reading is now double the low-point from February 2009.

It's no surprise that both Retail Sales and Consumer Confidence are higher. They correlate in a common-sense-type manner. When consumers are more confident in the economy, they're more likely to spend their money. This, in turn, leads to more purchases and rising retail receipts.

Unfortunately, for home buyers and rate shoppers in Brooklyn, NY , it also leads to rising mortgage rates.

Because consumer spending accounts for two-thirds of the economy, spending growth leads to economic growth. But it's been a lack of growth that's kept mortgage rates this low.

When the growth starts, the low rates end. It's why mortgage rates have added as much as 1/2 percent over the past 10 days. Consider the recent "good news":

• Retail Sales made a 2-year high in October
• Existing and New Home Sales showed big improvement in September
• Jobs growth returned in October

The days of 4 percent, 30-year fixed rate mortgages may be nearing its end.  If you're still floating a mortgage rate or thinking of buying or refinancing, consider the impact of rising rates on your budget.

The time to act may be sooner than you had planned.

Home Affordability Gets A Boost From Weak Back-to-School Retail Receipts

The recent rise in mortgage rates was slowed this week after the government released its Retail Sales report for August.

Prior to Tuesday, mortgage rates had been spiking across New York on the resurgent hope for U.S. economic recovery. The sentiment shift was rooted in reports including the Pending Home Sales Index and Initial Jobless Claims, both of which showed surprising strength last week.

August's Retail Sales, though, after removing motor vehicles, auto parts and gasoline sales, failed to maintain the momentum. Its figures were actually in-line with expectations -- it's just that expectations weren't all that high.

Wall Street now wonders whether the weak Back-to-School shopping season will trend forward into the holidays.

The doubt spells good news for mortgage rates and home affordability.

Because Retail Sales is tied to consumer spending and consumer spending accounts for two-thirds of the economy, a weak reading tends to drag down stock markets and pump up bonds, and when bonds are in demand, mortgage rates fall.

This is exactly what happened Tuesday. The soft Retail Sales data eased stock markets down, and generated new demand for mortgage bonds. This demand caused bond prices to rise, which, in turn, caused mortgage rates to fall.

Mortgage rates did not cut new lows this week, but they're very, very close.

With mortgage rates at historical lows, it's an excellent time to look at a refinance, or gauge what financing a new home would cost. Low rates like this can't last forever.