This Week's Market Commentary

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This week brings us the release of six economic reports that may affect mortgage rates along with two Treasury auctions and a Fed conference that has several key speakers. With data and related events scheduled every day the rest of this week, it is likely to be an active one for mortgage rates.

The Conference Board will post their Consumer Confidence Index (CCI) for August late this morning. This index measures consumer sentiment about their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling more confident in their own finances, they are more apt to make a large purchase in the near future, fueling economic growth. A decline in confidence would indicate that surveyed consumers probably will not be buying something big in the immediate future. That would be a sign of economic weakness and should drive bond prices higher, leading to lower mortgage rates today. It is expected to show a reading of 65.5, which would be a slight decline from July's 65.9. The lower the reading, the better the news for bonds and mortgage rates.

Wednesday has two reports scheduled that can potentially influence mortgage pricing. The first is the first revision to the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. This reading is the second of three that we see each quarter. Last month's preliminary reading revealed that the economy grew at an annual rate of 1.5%. Wednesday's revision is expected to show that the GDP actually rose only 1.6%. A smaller than expected reading should help lower mortgage rates Wednesday, especially if the inflation portion of the release does not get revised higher. There will be a final revision issued next month, but it probably will have little impact on mortgage rates since traders will be more interested in the current quarter’s activity.

The Federal Reserve will release its Beige Book report at 2:00 PM ET Wednesday. This report details current economic conditions in the U.S. by Federal Reserve regions. It is believed to be a key source of data when the Fed meets for their FOMC meetings and is usually released approximately two weeks prior to each meeting. If it reveals any significant surprises or changes from the past, we may see movement in the markets and mortgage pricing as analysts adjust their theories on the Fed's next move. Most likely though, it will be a non-event and will not lead to a noticeable change in mortgage rates.

July's Personal Income and Outlays report will be released early Thursday morning, giving us a measurement of consumer ability to spend and current spending habits. It is expected to show an increase of 0.3% in income and a 0.5% increase in spending. Since consumer spending makes up over two-thirds of the U.S. economy, weaker than expected numbers would be considered good news for the bond market and mortgage rates.

Friday is a multi-release day with August's revision to the University of Michigan's Index of Consumer Sentiment and last month’s Factory Orders data both being posted late Friday morning. The sentiment index helps us track consumer willingness to spend similarly to Tuesday’s CCI. It is expected to show no change from August's preliminary reading of 73.6. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates because waning confidence usually means that consumers are less likely to make large purchases in the near future. As with the CCI index, the lower the reading the better the news for bonds and mortgage rates.

July's Factory Orders data measures manufacturing sector strength and is similar to last week's Durable Goods Orders, but includes orders for both durable and non-durable goods. It is expected to show a 2.0% increase in new orders. A smaller than expected rise would be favorable for bonds, but I don't see this data causing much movement in rates unless its results vary greatly from forecasts since the big-ticket products portion of the report was released last week.

Also worth mentioning are a couple of Treasury auctions that may affect bond trading and mortgage rates this week along with a speaking engagement by Fed Chairman Bernanke. The two relevant Treasure auctions are Wednesday's 5-year Note and Thursday's 7-year Note sales. Results of the auctions will be posted at 1:00 PM ET each day. If investor interest is strong in the auctions, we can expect the broader bond market to rally and mortgage rates to move lower. However, lackluster demand could lead to bond selling and higher mortgage rates Wednesday and Thursday afternoons.

Mr. Bernanke will be speaking Friday morning at the Jackson Hole Fed conference in Wyoming. He will be addressing current and future economic conditions, so his words are likely to influence the markets and mortgage pricing Friday. Also scheduled to speak are the European Central Bank and International Monetary Fund Presidents. What they will say and how it will impact the markets is difficult to predict, but there is a high probability of the markets reacting heavily to their words, so the event needs to be watched.

Overall, I believe it is going to be a fairly active week for the financial and mortgage markets. Choosing the best candidate for the most important day isn’t as easy. Wednesday has two economic reports scheduled along with the 5-year Note auction, but Friday’s Jackson Hole conference can be a market mover by itself without the two economic reports that are scheduled that day. So, let’s go with Wednesday AND Friday as the key days of the week. Since it looks to be another active week, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate.

BREAKING: FHFA sets new short sale guidelines for Fannie Mae, Freddie Mac

The Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac are issuing new, clear guidelines to their mortgage servicers that will align and consolidate existing short sales programs into one standard short sale program.

The streamlined program rules will enable lenders and servicers to quickly and easily qualify eligible borrowers for a short sale.

Among the changes: Fannie Mae and Freddie Mac will offer up to $6,000 to second lien holders to expedite a short sale. Previously, second lien holders could slow down the short sale process by negotiating for higher amounts.

Not any more.

Read HousingWire coverage by clicking here.

This Week's Market Commentary_August 13, 2012

This week brings us the release of seven pieces of economic data that are relevant to the bond market and mortgage pricing. There is no relevant data scheduled for release today, so look for the stock markets to drive bond trading and mortgage rates. There is data scheduled for every other day with three of the four remaining days having multiple reports being posted. This means we are likely to see plenty of movement in the markets and mortgage rates this week.

Tuesday has two of the week’s reports scheduled to be posted. July’s Retail Sales data is the first and one of the highly important reports scheduled this week. This data is very important to the financial markets and mortgage rates because it helps us measure consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any data related to it can cause a fair amount of movement in the markets. A smaller than expected increase would indicate that consumers are spending less than previously thought, pointing towards further slowing in the economic recovery. This is good news for the bond market and mortgage rates as it eases inflation concerns and makes long-term securities such as mortgage-related bonds more attractive to investors. Current forecasts are calling for an increase of 0.3%.

One of the week’s key inflation indexes will also be posted early Tuesday morning. July’s Producer Price Index (PPI) will give us an indication of inflation at the producer level of the economy. There are two readings in the report- the overall index and the core data reading. The core data is more important because it excludes more volatile food and energy prices that can change significantly from month to month. Current forecasts call for a 0.2% rise in the overall reading and a 0.2% increase in the core data. A larger increase in the core data could push mortgage rates higher Tuesday morning. If it reveals weaker than expected readings, we may see mortgage rates improve as a result. That is assuming that the Retail Sales data doesn’t show a surprise increase or decline.

The PPI will be followed by the even more important Consumer Price Index (CPI) early Wednesday morning. The Consumer Price Index is one of the most important reports we see each month as it measures inflation at the consumer level of the economy. As with the PPI, there are also two readings in the report. Current forecasts call for a 0.2% increase in the overall index and a 0.2% rise in the core data reading. Declines in the readings, especially in the core data, should lead to lower mortgage rates as it would mean inflation is still not a threat to the economy. However, stronger than expected readings will likely cause an increase to mortgage pricing Wednesday.

July’s Industrial Production is Wednesday’s second report with a release time of 9:15 AM ET. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important to the markets and can influence mortgage rates slightly. Current forecasts are calling for a 0.6% increase in production, indicating some strength in the manufacturing sector. Good news for the bond market and mortgage rates would be a decline in output, signaling sector weakness.

Thursday has only one monthly report scheduled for release. July’s Housing Starts will be posted at 8:30 AM ET Thursday. This report gives us an indication of housing sector strength and future mortgage credit demand. However, it isn’t considered to be of high importance to the bond market or mortgage pricing and usually doesn’t cause much movement in mortgage rates unless it varies greatly from forecasts. It is the least important of the week’s reports and is expected to show a slight increase in construction starts of new homes. The lower the number of starts, the better the news for the bond market, as it would indicate a weaker than expected housing sector.

Friday also has two pieces of data that are relevant to mortgage rates, but both come during late morning trading. The University of Michigan will release their Index of Consumer Sentiment for August at 9:55 AM Friday. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases. This helps fuel consumer spending and economic growth. By theory, a drop in confidence should boost bond prices, but this data is considered moderately important and carries much less significance than some of the week’s other reports. Analysts are expecting to see a reading of 72.2, which would be a slight decline from July’s revised reading of 72.3. The smaller the reading, the more concerned consumers are in their own financial situations and the better the news for mortgage rates.

The final report of the week will come from the Conference Board, who will give us its Leading Economic Indicators (LEI) for July. This index attempts to measure economic activity over the next three to six months and is considered to be moderately important. A higher than expected reading is bad news for the bond market because it indicates that the economy may be strengthening more than thought. However, a weaker than expected reading means that the economy may not grow as much as predicted, making stocks less appealing to investors. This also eases inflation concerns in the bond market and could lead to slightly lower mortgage rates Friday if the stock markets remain calm and the day’s other data does not show any surprises. It is expected to show an increase of 0.2 % in the index, indicating minor economic growth over the next couple of months. It will take a sizable difference between forecasts and its actual reading for this report to influence mortgage rates.

Overall, I am expecting Tuesday or Wednesday to be the most important days of the week. Tuesday’s Retail Sales report and Wednesday’s CPI are the two single most influential reports. Since Tuesday has the Retail Sales and PPI reports and consumer level inflation is not expected to be an immediate threat, I am leaning towards it as the day that we will see the most movement in mortgage rates. However, Wednesday is also a key day. I am expecting to see the least movement tomorrow, unless the stock markets stage a significant rally or sell-off. With so much going on this week, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate.

Now Cheaper To Buy Than To Rent

It is now considerably cheaper to own a home than to rent that same home, something unheard of since 2008.

This and other promising information about the housing market was recently released by Harvard in their annual “State of the Nation’s Housing,” an in-depth study performed by The Joint Center for Housing Studies at Harvard University.

Because of historically low mortgage rates and low home prices post-recession, it is a perfect time to buy.

On the other hand, rent prices are soaring, especially in the Bay Area. According to Trulia, San Francisco and Oakland saw the biggest jumps in rent in the United States over the last year, with increases of 14.7 percent and 11.2 percent, respectively.

“With rents up, home prices sharply down, and mortgage interest rates at record lows, mortgage costs relative to monthly rents haven’t been this favorable since the early 1970s,” said Eric S. Belsky, managing director for the Joint Center for Housing Studies at Harvard.

The report also noted that today, mortgage payments for the median priced US home are roughly half of what they were in 1990. The study showed that mortgage payments are now 23% less than rent payments for the median priced home.

This means that it is a fantastic time to be a home buyer, and to get off of the fence if you’ve been waiting for the market to turn around.

Take a look at the entire Harvard study here:
http://www.jchs.harvard.edu/research/state_nations_housing.

This Week's Market Commentary_June 11, 2012

This week is pretty busy with five economic reports scheduled to be released, all of which are being posted over three days. Three of the five are considered to be of high importance to the markets and mortgage rates.

The rest are of interest to the markets but likely will not cause a large change in mortgage rates unless they vary greatly from forecasts. In addition to the economic data, we also have two Treasury auctions that have the potential to influence bond trading and mortgage rates.

None of the relevant data is being posted tomorrow or Tuesday, so look for the stock markets to influence bond trading and mortgage rates again. Of particular interest will be this weekend’s news that Spain’s banks are receiving a significant cash infusion to at least temporarily ease the crisis there. This will likely fuel a stock rally today that should pressure bonds and mortgage rates. On top of that, weakness late Friday has us going into the new week with a small upward revision built into today’s morning rates.

The first data of the week comes Wednesday when two of the highly important reports are scheduled. May’s Retail Sales data and Producer Price Index (PPI) will both be released at 8:30 AM ET Wednesday morning. The sales data gives us a very important measure of consumer spending, which is highly relevant to the bond market because consumer spending makes up over two-thirds of the U.S. economy. Analysts are expecting to see that retail-level sales fell 0.2% last month. A larger decline in sales, signaling a slowing economy, would be good news for the bond market and could lead to lower mortgage rates Wednesday.

The second release of the day is one of the week’s two key measurements of inflation. May’s Producer Price Index (PPI) will help us measure inflationary pressures at the producer level of the economy. There are two readings of this index, the overall and the core data. The core data is considered to be the more important one because it excludes more volatile food and energy prices. A large increase could raise concerns about inflation rising as soon as the economy gains some traction. This would not be good news for bond prices or mortgage rates since inflation erodes the value of a bond’s future fixed interest payments. Rising inflation causes investors to sell bonds, driving prices lower, pushing their yields upward and mortgage rates higher. Analysts are expecting to see a decline of 0.7% in the overall index and a 0.2% rise in the core data.

The two relevant Treasury auctions scheduled will also be held the middle part of the week. A 10-year Treasury Note sale is scheduled for Wednesday while 30-year Bonds will be sold Thursday. Results of both auctions will be posted at 1:00 PM ET on the sale days. If investor demand was high, we may see bonds rally during afternoon trading, however, weak demand could lead to selling and an increase to mortgage rates. It is common to see some pressure in bonds right before these sales as investors prepare for them, but as long as the sales are not weak those pre-auction losses are usually recovered once they are completed.

Thursday has one of the week’s most important and arguably one of the single most important reports the bond market gets each month. That is May’s Consumer Price Index (CPI). It is very similar to Wednesday’s PPI, but measures inflationary pressures at the more important consumer level of the economy. It is expected to show a 0.2% decline in the overall reading and a 0.1% increase in the core data. A larger than expected increase in the core reading would most likely lead to a noticeable upward change to mortgage rates Thursday, while a weaker core reading could lead to a bond rally and lower mortgage pricing.

Friday closes the week with two relevant reports, the first coming mid-morning when May’s Industrial Production data is released. This report will be released at 9:15 AM ET and is considered to be moderately important. It measures output at U.S. factories, mines and utilities, giving us a fairly important measurement of manufacturing sector strength. If it reveals that production is rising, concerns of manufacturing strength may come into play in the bond market. A larger increase then the expected 0.1% would indicate that the manufacturing sector is stronger than thought and would likely help push mortgage rates slightly higher.

June’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be posted late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. It is expected to show a reading of 77.0, which would be a decline from May’s 79.3. A smaller than expected reading would be considered good news for bonds because it would mean that surveyed consumers were less optimistic about their own financial situations than thought. That often means they are less likely to make large purchases in the near future, but since this report is only moderately important it likely will not influence mortgage rates considerably.

Overall, look for Wednesday or Thursday to be the biggest day of the week. Not just because it brings the release of three of the week’s five reports, but also because of the importance of some of those releases. We saw plenty of movement in the markets and mortgage pricing last week and it is quite likely that this week will be similar. The stock markets will also influence bond trading and mortgage rates, so watch the major indexes in addition to the economic reports. It is highly recommended that you maintain contact with your mortgage professional this week if still floating an interest rate.

This Week's Market Commentary_June 4, 2012

This week is relatively light in terms of scheduled economic reports that are relevant to mortgage pricing. None of the factual economic reports are considered to be highly important to the financial markets or mortgage pricing. The data that is on the agenda is considered to be moderately important, but Wednesday afternoon and Thursday morning have events scheduled that could be the biggest factor in whether mortgage rates move higher or lower this week.

The first release of the week will come from the Commerce Department, who will post April's Factory Orders data late tomorrow morning. This manufacturing sector report is similar to last week's Durable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn't expected to cause much of a change in rates. Current forecasts are calling for an increase in new orders of 0.2%.

There is nothing of relevance scheduled for release Tuesday, but Wednesday has two events that we will watch. The first is the revised 1st Quarter Productivity and Costs data at 8:30 AM ET. This data measures employee output and employer costs for wages and benefits. It is considered to be a measurement of wage inflation. This is relevant because it is believed that the economy can grow with low inflationary pressures when productivity is high. Economic growth isn’t much of a concern to the bond market at the moment, but if productivity is at a high level when the economy does turn the corner, inflation may not be as much of a topic as it would be without strong productivity levels. Last month's preliminary reading revealed a 0.5% decline and analysts are expecting to see a 0.7% decline, but I don't think this piece of data will have much of an impact on the bond market or mortgage pricing unless it varies greatly from that reading.

Wednesday afternoon has the Federal Reserve’s release of their Beige Book. This data details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could see mortgage rates revise higher Wednesday afternoon.

Thursday has no important economic data scheduled, but Fed Chairman Bernanke will speak before a Congressional Joint Economic Committee about his outlook for the economy. His words are always the focus of attention and can be highly influential on the markets and mortgage rates. It will be interesting to see exactly what he says and how much his outlook has changed in the recent weeks, especially after Friday’s disappointing Employment report. He is scheduled to testify at 10:00 AM ET, so we could see many lenders post rates later than usual to allow the markets to react to his prepared speech and the Q&A that follows. I think this event is more likely to benefit mortgage shoppers than lead to a spike in rates, but it is the week’s most important event so I recommend proceeding cautiously into it if still floating an interest rate.

April's Goods and Services Trade Balance report will close the week’s economic reports early Friday morning. This data gives us the size of the U.S. trade deficit and will be released at 8:30 AM ET. It isn't likely to cause much movement in the markets or mortgage rates, but nevertheless forecasters are expecting to see a $49.9 billion trade deficit. It will take a wide variance from this projection for the data to influence mortgage rates.

Overall, it likely is going to be a moderately busy week for the mortgage market. The most action will likely come during the middle days, assuming that the stock markets don't go into heavy selling or rally. Friday’s employment data helped fuel large stock losses and pushed bond yields to new record lows. The loss puts the Dow just a little more than 100 points away from breaking below an extremely important benchmark of 12,000. If stocks recover a good part of last week’s losses, we can expect bond prices to suffer and mortgage rates to rise. On the other hand, further stock weakness could lead to more funds moving into bonds and another round of improvements to mortgage rates.

As referenced Friday, I believe the major indexes still have plenty of room to fall, which traditionally makes bonds more attractive as investors seek a safe-haven to place funds and escape the volatility. However, we should note that the 10-year Treasury is currently at a historic low yield of 1.47%. Even lower than when the financial crisis was at its peak. My concern is that I am not sure just how much lower we can see yields fall before investor appeal wanes, raising concerns about inflationary risks in the future. We are in unchartered waters with mortgage rates so low, stocks still relatively overpriced, overseas concern rising again and bond yields at record lows. It is going to be interesting to see what happens over the summer. At some point in the near future we will need to shift to a conservative approach towards mortgage rates, but for the time being, enjoy the improvements.

This Week’s Market Commentary_May 21, 2012

This week brings us the release of four important economic reports in addition to two Treasury auctions that may influence rates. Only one of the reports is considered to be of fairly high importance to the bond market and mortgage pricing.

The remaining reports are considered to be of moderate or low importance and will likely not heavily influence mortgage rates. There is nothing of importance scheduled for release tomorrow, so expect the stock markets to influence bond trading and mortgage pricing.

The National Association of Realtors will give us their Existing Home Sales report late Tuesday morning. This data tracks resales of homes in the U.S. during April, giving us a measurement of housing sector strength. This type of data is relevant because a weakening housing sector makes a broader economic recovery less likely. Current forecasts are calling for an increase in home sales between March and April. Ideally, the bond market would prefer to see a decline, indicating further housing sector weakness. A large increase in sales could lead to bond weakness and a small increase in mortgage rates Tuesday morning.

April’s New Home Sales report is the sister report of the Existing Home Sales and will be released late Wednesday morning. It gives us a similar measurement of housing sector strength and future mortgage credit demand, but tracks a much smaller portion of housing sales than Tuesday’s report does. Actually, it is the least important release of the week and probably will not have much of an impact on mortgage pricing. It is expected to show gains in sales from March’s level, meaning the new home portion of the housing sector also strengthened last month.

Thursday has the week’s most important report with April’s Durable Goods Orders being posted. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket products. These are items made with an expected life span of three or more years. It is currently expected to show an increase in new orders of approximately 0.3%, indicating the manufacturing sector remained fairly flat last month. That would be relatively good news for the bond market and mortgage rates, but this data is known to be quite volatile. Therefore, a small variance from forecasts would likely have little impact on Thursday’s mortgage rates.

The last relevant data of the week will come from the University of Michigan, who will update their Index of Consumer Sentiment for May late Friday morning. This type of data is watched closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, rising confidence and the higher levels of spending that usually follow, are considered negative news for bonds and mortgage rates. Friday’s report is expected to show a small decline from this month’s preliminary reading of 77.8. A reading above 77.5 would be considered negative for bonds and mortgage pricing.

Overall, I think we have a moderately busy week ahead of us. The big report of the week is the Durable Goods Orders, making Thursday the best candidate for most active day for mortgage rates. Tuesday’s housing report may also cause movement in rates if it shows a sizable variance from forecasts. There are also a couple of Treasury auctions that are worth noting. The 5-year Note sale is Wednesday and the 7-year Note auction will be held Thursday. Both may also influence bond trading and possibly mortgage rates if they are met with an exceptional demand or if there is lackluster interest from investors.

Also worth noting is the fact that the bond market will close early Friday afternoon ahead of next Monday’s Memorial Day holiday. With all this, there is a pretty good possibility of seeing mortgage rates change several times this week- especially if there is more volatility in the stock markets. Accordingly, please proceed extremely cautiously if still floating an interest rate.