Weekly Mortgage Commenary-January 13, 2014

This week has seven economic reports that are relevant to the bond market and mortgage pricing. Some of the data is considered to be highly important and we have reports set for release four of the five days. In addition to the data, there are also a relatively high number of public speaking engagements for Federal Reserve members. There is nothing of importance scheduled for release Monday, but if Friday’s strong rally extends into Monday’s trading we should see further improvements to mortgage rates.

The first economic report of the week will be posted early Tuesday morning when the Commerce Department will release December’s Retail Sales data at 8:30 AM ET. This Commerce Department report measures consumer spending by tracking sales at U.S. retail level establishments. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely. Rising consumer sales fuels expectations for broader economic growth that makes long-term bonds less attractive to investors. Current forecasts are calling for no change from November’s sales. A decline in sales would be good news for bonds and mortgage rates because it would hint at weaker than thought economic growth.

Wednesday has two reports scheduled for release that have the potential to influence mortgage rates. The first and more important is the Labor Department’s Producer Price Index (PPI) at 8:30 AM ET. The PPI is important to the markets and mortgage rates because it measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.3% rise in the overall reading and a 0.1% increase in the more important core reading that excludes volatile food and energy prices. A larger than expected increase in the core reading could mean higher mortgage rates Wednesday since inflation is the number one nemesis of the bond market. It erodes the value of a bond’s future fixed interest payments, making them less attractive to investors. Accordingly, they are sold at a discount to offset the drop in value, which drives their yields higher. And since mortgage rates follow bond yields, rising inflation usually translates into higher interest rates for borrowers.

Also Wednesday, the Federal Reserve’s Beige Book will be posted at 2:00 PM ET. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on it during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises, particularly regarding inflation, unemployment or future hiring. Any reaction to the report though will come during afternoon trading.

Thursday’s sole monthly report is December’s Consumer Price Index (CPI) at 8:30 AM. This is one of the most important monthly reports for the bond market each month since it measures inflationary pressures at the consumer level of the economy. As with the PPI, there are two readings in the release. The overall index is expected to increase 0.3% while the core data rose 0.3%. Weaker than expected readings would be favorable news and should lead to bond strength and lower mortgage rates Thursday morning.

The remaining three reports are all set for Friday morning. The first data of the day is December’s Housing Starts at 8:30 AM. It helps us measure housing sector strength and future mortgage credit demand by tracking construction starts of new homes. It is not considered to be one of the more important releases each month, so I don’t see it causing much movement in mortgage rates Friday but does carry the potential to affect trading and rates if it shows a significant surprise. Analysts are expecting to see a decline in new home starts between November and December.

December’s Industrial Production report has a release time of 9:15 AM ET Friday. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength or weakness. Current forecasts are calling for an increase in production of 0.3% from November’s level. A weaker reading would be considered good news for bonds and could help lower mortgage rates as it would point towards a manufacturing sector that was softer than many had thought.

The final report of the week is January’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to slightly change mortgage rates. If consumers feel better about their own financial and employment situations, they are more apt to make a large purchase in the near future, fueling economic growth. Good news would be a reading weaker than the 83.0 that is expected and even better would be lower than December’s 82.5.

There also are speaking engagements by current Fed members each day, with some days having multiple appearances scheduled. The topics of some of them appear to be directly related to economic growth, so their words can also influence the markets enough affect mortgage rates. Their speaking times range from early morning to post-closing, so we could see markets react at different times of the day. Fed Chairman Bernanke is due to speak late morning Thursday.

Overall, Tuesday or Thursday will probably be the most active day for mortgage rates with some key economic data being posted both days. The least active day will likely be Monday, although we could see last Friday’s afternoon strength extend into Monday’s early trading. That would be good news for mortgage rates as many lenders already improved rates during afternoon trading Friday. The stock markets, which I believe are due for a pullback, also can be a big influence on bond trading and mortgage pricing any day (stock weakness should equate to bond strength). I still like what I see in bonds right now even after the recent rally and would not be surprised to see further gains that drive the benchmark 10-year Treasury Note yield and mortgage rates lower. However, this week’s data is important enough to reverse last week’s downward move, so while the overall tone in the bond market is positive, you should still maintain contact with your mortgage professional if still floating an interest rate in case that changes.

Weekly Mortgage Commentary-January 6, 2014

This week brings us the release of only two monthly reports that are relevant to the bond market and mortgage rates, but one of them is considered to be extremely important. In addition to those reports, we also will get the minutes from the last FOMC meeting and two Treasury auctions that have the potential to influence the bond market and quite possibly mortgage rates.

The Commerce Department will post November’s Factory Orders data late Monday morning. This data gives us a fairly important measurement of manufacturing sector strength. It is similar to the Durable Goods Orders release that was posted just before Christmas, except this report includes orders for both durable and non-durable goods. Durable goods are items that are expected to last three or more years such as appliances, electronics and autos. Examples of non-durable goods are food and clothing. Analysts are expecting to see an increase of 1.7% in new orders. This report generally does not have a huge impact on the bond market or mortgage rates, but it can influence bond trading enough to create a minor change in rates if it shows a sizable variance from forecasts. The smaller the increase, the better the news it is for mortgage pricing.

November’s Goods and Services Trade Balance will be posted early Tuesday morning. It measures the size of the U.S. trade deficit and is expected to show a $40.4 billion deficit. This data usually does not directly affect mortgage rates, but it does influence the value of the U.S. dollar versus other currencies. A stronger dollar makes U.S. securities more attractive to international investors because they are worth more when sold and converted to the investor’s domestic currency. But unless we see a significant variance from forecasts, I don’t believe this data will lead to a change in mortgage rates Tuesday.

There are Treasury auctions scheduled several days this week, but the two that are the most likely to affect mortgage rates will be held Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important of the two as it will give us a better indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would result in upward revisions to mortgage rates. Results will be posted at 1:00 PM ET each day, so any reaction will come during early afternoon trading.

Also Wednesday is the release of the minutes from the last FOMC meeting. They will give market participants insight to the Fed’s thinking and concerns regarding the economy, inflation and monetary policy. It is one of those pieces of information that may cause a great deal of volatility in the markets or be a non-factor, depending on what the minutes show. They will be released at 2:00 PM ET, so they won’t affect the markets or mortgage rates until afternoon hours. I don’t suspect this particular set of minutes will cause too much concern or excitement because the last FOMC meeting was followed by revised Fed forecasts and a press conference by Chairman Bernanke. Although, the meeting did yield the first reduction in the Fed’s current bond buying program (QE3). Therefore, analysts will be looking for any tidbits that could help predict when the next reduction will be made.

The big news of the week will come at 8:30 AM Friday when the Labor Department will post December’s employment figures. The Employment report is arguably the single most important monthly release we see. It gives us the national unemployment rate, the number of jobs added or lost during the month and average hourly earnings, which is a key measure of wage inflation. Rising unemployment, a decline in payrolls and flat earnings would be ideal news for the bond market.
Current forecasts call for no change from November’s unemployment rate of 7.0%, 197,000 new jobs added to the economy and an increase in earnings of 0.2%. If we see weaker than expected results, the bond market should rally and stocks should fall, improving mortgage rates noticeably Friday. However, stronger than expected readings will likely raise optimism about the economy, pushing stocks and mortgage rates sharply higher.

Overall, Friday is the key day of the week with the almighty Employment report being posted, but Wednesday afternoon also has a chance to be pretty active. The least active day will likely end up being Tuesday and Thursday doesn’t have too much to be concerned about either. The benchmark 10-year Treasury Note yield closed just below 3.00% last week. I will be watching it very closely for mortgage rate direction over the next several weeks. It has been in a tight range between 2.95% and 3.00%. If we could get enough favorable news to push it below 2.95%, we should see a noticeable downward move. Since mortgage rates follow bond yields, that would be good news for mortgage shoppers. On the other hand, breaking above 3.00% and staying above could indicate a sharp upward move in rates over the next couple weeks. Therefore, please keep an eye on the markets and maintain contact with your mortgage professional if still floating an interest rate.

How To Help Your Real Estate Broker Help You

How To Help Your Real Estate Agent Help You

In today’s post, we’ll look at what your real estate agent can and can’t do, what you should know about real estate agents, and how you can help your agent the most.  We’ll focus on if you’re selling a home this time, and create another one on what to do if you’re a buyer in the future.

Open Houses

You may think an open house is a great idea for getting people to look at your home and push for it. But the truth is that houses rarely sell that way. People like to have a private appointment so they can take their time looking around. The open houses help your agent because it builds up their contact list.

Don’t Use Plug-In Air Fresheners

The oily or waxy smell can be a turn-off to some people. Your best bet is to bake a load of cookies before people visit.

Last Second Lookers

If your agent says that someone wants to come over in 15 minutes, let them even if the house is a bit messy. It’s these type of last minute lookers that turn into impulsive buyers.

Don’t Be Offended By Low Balls

The fact that they made an offer means you may be able to negotiate them up. Let your real estate agent see what they can do.

Read the Contract Carefully

Very successful agents often pass their listing to junior agents and let them use the name. Before you sign a contract, make certain you know who will be working with you and what they will be doing.  By having proper expectations set, you’ll have a better experience.
Some agents put in additional fees ranging from $250 to $1,500 on top of their standard commission. It’s intended to cover their brokerage’s administrative costs.
All of these fees are negotiable.

Leave Furniture or Agree to Hire A Stager

Empty rooms don’t appear larger. In fact, they may appear smaller because the potential buyer has no sense of scale. And if the potential buyer sees furniture, they can imagine themselves living in the home more easily.
That being said, always keep your counter tops clear of clutter in the kitchen and bathrooms.  If you’re still living there, keep a special place where you can swipe everything into at the last second.
And don’t go overboard with decorating like wine glasses in a tray next to the bed, or fake pies on the counter. That could turn people off.

Mutually Listen

It’s important that you feel like your agent is listening to you and your concerns. It’s just as important that you listen to the agent. They should be the expert in home sales in your area, and may have additional knowledge that you don’t
Are you looking to buy a home before the end of this year?

Weekly Mortgage Commentary-December 16, 2013

This week has nine monthly or quarterly economic reports scheduled for release in addition to some key Fed events and a couple of Treasury auctions that could potentially affect mortgage rates. There is data set for release every day of the week, but the more important events will take or be posted the middle days. Still, with the majority of the days having multiple reports or events scheduled, there is a good chance of seeing plenty of movement in mortgage pricing this week.

 

The week opens with revised 3rd Quarter Productivity numbers at 8:30 AM ET Monday. This index is expected to show an upward revision from the preliminary reading of worker productivity. Higher levels of productivity are thought to allow the economy to expand without inflationary pressures rising. This is good news for the bond market because economic growth itself isn’t necessarily bad for the bond market. It’s the conditions around an expanding economy, such as inflation, that hurt bond prices and mortgage rates. Current forecasts are calling for an annual rate of 2.8%, up from the previous estimate of 1.9%. The higher the reading, the better the news it is for the bond market.

Next up is November’s Industrial Production report mid-morning Monday. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting it to show a 0.4% increase in output, indicating modest manufacturing growth. A smaller than expected rise would be good news for bonds, while a stronger reading may result in slightly higher mortgage pricing.

November’s Consumer Price Index (CPI) will be released at 8:30 AM ET Tuesday. It is similar to last Friday’s Producer Price Index, except it tracks inflationary pressures at the more important consumer level of the economy. Current forecasts call for an increase of 0.1% in both the overall and core data readings. This data is one of the most watched inflation indexes, which is extremely important to long-term securities such as mortgage related bonds. Rising inflation erodes the value of a bond’s future fixed interest payments, making them less appealing to investors. That translates into falling bond prices and rising mortgage rates. Therefore, weak readings would be favorable for the bond market and mortgage shoppers.

Wednesday’s only economic report is Housing Starts, but we will get three months worth of it. Due to the government shutdown in October and problems collecting data last month, we will see results for September, October and November at 8:30 AM ET Wednesday. This data isn’t known to be highly influential on bonds or mortgage pricing. It does give us an indication of housing sector strength by tracking new home groundbreakings, so it is worth watching. All three months are expected to show increases, indicating strength in the new home portion of the housing sector. Slowing starts would be favorable for the bond market, although a wide variance is likely needed for the data to cause noticeable movement in the markets or mortgage rates.

Wednesday also has some significant FOMC events that can be highly influential on the financial and mortgage markets. The two-day FOMC meeting that began Tuesday will adjourn at 2:00 PM ET Wednesday. It is widely expected that Mr. Bernanke and company will not change key short-term interest rates at this meeting, but traders and analysts are anxious to get the Fed’s current economic forecasts and any word of a potential reduction in the Fed’s current bond buying program. Also worth noting is that the meeting is ending earlier than the traditional 2:15 PM because it is one of the meetings that will be followed by a press conference hosted by Fed Chairman Bernanke. The meeting will adjourn at 2:00 PM, forecasts will be posted at 2:00 PM and the press conference will begin at 2:30 PM. It is fairly safe to assume that all of that will lead to afternoon volatility in the markets and mortgage rates Wednesday.

Thursday has two monthly reports scheduled for 10:00 AM ET that we will be watching. The first is November’s Existing Home Sales figures from the National Association of Realtors, giving us a measurement of housing sector strength and mortgage credit demand. It is expected to show a decline in sales, indicating a slowing housing sector. A sizable decline in sales would be considered positive for bonds and mortgage rates because a softening housing market makes broader economic growth more difficult. But unless the actual readings vary greatly from forecasts, the results will probably have little or no impact on mortgage rates.

The Conference Board will also release their Leading Economic Indicators (LEI) for the month of November late Thursday morning. This release attempts to measure or predict economic activity over the next three to six months. It is expected to show a 0.6% increase, meaning that it predicts economic growth over the next several months. This probably will not have much influence on bond prices or affect mortgage rates unless it shows a much stronger reading than the 0.6% rise that is forecasted. The weaker the reading, the better the news it is for bonds and mortgage pricing.

Friday has the remaining report with the final revision to the 3rd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. I don’t think this data will have an impact on mortgage rates unless it varies greatly from its expected reading. Last month’s first revision showed that the economy expanded at a 3.6% annual pace during the quarter and this month’s final revision is expected to show no change from that level. A revision higher than the 3.6% rate that is expected would be considered bad news for bonds. But since this data is quite aged at this point and 4th quarter numbers will be posted next month, I don’t think it will have much of an impact on Friday’s mortgage rates.

In addition to this week’s economic data and Fed events, we also have Treasury auctions scheduled the first three days. The two that are most likely to influence mortgage rates are Wednesday’s 5-year and Thursday’s 7-year Note sales. If those sales are met with a strong demand, particularly Thursday’s auction, bond prices may rise enough to lead to improvements in mortgage rates shortly after the results are posted. They will be announced at 11:30 am Wednesday and 1:00 PM Thursday. But a lackluster investor demand may create bond selling and upward revisions to mortgage rates Wednesday and/or Thursday.

Overall, Wednesday is the key day of the week due to the afternoon Fed schedule. Tuesday’s data is also key to the bond market, but I think we will see the most volatility in the markets and mortgage rates Wednesday. Despite the GDP reading, I believe Friday is the best candidate for calmest day. Generally speaking, this is probably going to be a pretty active week for the bond and mortgage markets. It is likely that I will remain very cautious towards rates until the benchmark 10-year Treasury Note yield breaks above 2.90% (currently at 2.87%) for more than a few minutes to see if that truly is a strong resistance level or if it will continue to rise past. Therefore, please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future as we are getting very close to that threshold.

Weekly Mortgage Commentary - December 9, 2013

This week has only two pieces of monthly economic data scheduled for release in addition to a couple of Treasury auctions that have the potential to influence mortgage rates. Both of the economic releases are considered highly important though and the Treasury auctions are the more important set of auctions we regularly deal with, so despite the lack of a busy calendar we still should see noticeable movement in rates this week.

Monday has no relevant economic data scheduled, but does have several afternoon speaking engagements by Federal Reserve members. The topics of a couple of the speeches are related to the economy, so analysts and traders will be watching them for any surprises or tidbits that could alter forecasts of what future moves the Fed may make and when they will be made. Often these appearances are non-factors because they are related to banking rules or other boring topics. Since some of Monday’s look to be directly related to current and future economic conditions, we could see one or more of them affect afternoon trading and mortgage pricing.

There are Treasury auctions scheduled for several days this week, but the two we need to watch are the 10-year Note sale Wednesday and the 30-year Bond sale Thursday. Wednesday’s auction is the more important one and will likely have a bigger influence on mortgage rates. Results of the sales will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, particularly international buyers, we should see strength in the broader bond market and improvements to mortgage pricing during afternoon hours those days. On the other hand, a weak interest in the auctions could lead to upward revisions to mortgage rates.

November’s Retail Sales report is scheduled for release Thursday at 8:30 AM ET. This report will give us a key measurement of consumer spending by tracking sales at retail level establishments. This data is highly important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rapidly rising consumer spending raises the possibility of seeing solid economic growth. Since long-term securities such as mortgage bonds are usually more appealing to investors during weaker economic conditions, a large increase in retail sales will likely drive bond prices lower and mortgage rates higher Thursday. Current forecasts are calling for an increase of 0.6% in November’s sales.

The second and final relevant report of the week will be November’s Producer Price Index (PPI) early Friday morning. It measures inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices, giving a more stable reading for analysts to consider. If Friday’s release reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively and drive mortgage rates higher. If we see in-line or weaker than expected numbers, the bond market should respond well and mortgage rates could fall. Current forecasts are showing a 0.1% decline in the overall index and a 0.1% rise in the core data.

Overall, I suspect Thursday will be the most active day of the week with the consumer spending data and 30-year Bond auction, but Friday’s data can also cause movement in rates. The calmest day will likely be Tuesday. It will probably be a calmer week than last week in terms of mortgage rate movement although we still should see rate changes multiple days. The benchmark 10-year Treasury yield closed the week at 2.88% after touching 2.92% immediately after November’s stronger than forecasted Employment report was posted. I believe this week will help determine if that yield will break above 2.90% again or retreat towards 2.62%. Since mortgage rates tend to follow bond yields, the latter would be preferred by mortgage shoppers. Because the 2.92% on Friday was momentarily, I am hesitant to rely on it as a basis in switching to Float recommendations. Therefore, I am maintaining the conservative stance towards locking or floating an interest rate for the time being.

Weekly Mortgage Commentary-December 2, 2013

This week is packed with economic data with 10 pieces set for release, including two that are considered to be highly important to the markets and mortgage rates. November’s manufacturing index from the Institute for Supply Management (ISM) is the first, coming at 10:00 AM ET Monday. This index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. Current forecasts call for a decline in sentiment from October to November. October’s reading was previously announced as 56.4. A weaker reading than the expected 55.5 would be good news for the bond market and mortgage rates. A reading above 50 means that more surveyed business executives felt business improved during the month than those who felt it had worsened. The lower the reading the better the news for bonds because waning sentiment indicates a slowing manufacturing sector and makes broader economic growth less likely.

There is nothing of importance scheduled for Tuesday, but Wednesday has three reports starting with October’s Goods and Services Trade Balance at 8:30 AM ET. This report gives us the size of the U.S. trade deficit, but it is considered to be of low importance to mortgage rates. It is actually the week’s least important monthly report. It is expected to show a $40.5 billion trade deficit, which would be a decline from September. Unless it varies greatly from forecasts, I don’t expect this data to affect mortgage pricing Wednesday.

Next on tap is two months’ worth of new home sales data from the Commerce Department. At 10:00 AM ET Wednesday we will get September’s and October’s New Home Sales reports that will give us an indication of housing sector strength. September’s data was delayed during the government shutdown, so we will get both reports this week. This data is not considered to be highly important because new home sales make up only a small portion of all home sold in the U.S. Analysts are expecting to see an increase in September’s sales but a decline in October’s sales. Ideally, bond traders prefer to see declining sales as it would point towards weakness in the housing sector. However, unless there is a significant surprise in the results, the data will probably have only a modest impact on Wednesday’s mortgage rates.

Also Wednesday, the Federal Reserve will release their Beige Book at 2:00 PM ET. This report, which is named simply after the color of its cover, details economic conditions by Fed region. That information is relied upon heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any noticeable changes from the last update. More times than not though, this report will not influence the markets enough to cause intra-day changes to mortgage rates, but the potential to do so does exist.

The first of two revisions to the 3rd Quarter Gross Domestic Product (GDP) will be posted early Thursday morning. It is expected to show an upward revision from last month’s preliminary reading of a 2.8% annual rate of growth. The GDP measures the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. Current forecasts call for a 3.0% rate of growth, meaning that there was a little more economic activity during the third quarter than previously thought. This would be bad news for mortgage rates because solid economic growth makes long-term securities such as mortgage-related bonds less appealing to investors. A modest increase shouldn’t be too detrimental to rates since it is expected. On the other hand, a sizable revision upward or downward could significantly influence the financial and mortgage markets.

October’s Factory Orders will be posted late Thursday morning. This report is similar to the Durable Goods Orders report that was released last week, except this one includes manufacturing orders for both durable and non-durable goods. This data usually isn’t a major influence on bond trading, but it does carry enough importance to impact mortgage rates if it shows a sizable variance from forecasts. Analysts are expecting to see a 1.0% decline in new orders. The larger decline, the better the news for bond prices and mortgage rates because it would signal manufacturing sector weakness. If we do see a much larger drop in new orders, the bond market could thrive, improving mortgage rates Thursday morning.

The biggest news of the week comes Friday morning when the Labor Department posts November’s Employment figures. This is arguably the most important monthly report we see, so its impact on the markets and mortgage rates is often significant. It is comprised of many statistics and readings, but the most watched ones are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts call for a 0.1% decline in the unemployment rate to 7.2% while 185,000 new jobs were added to the economy. The income reading is forecasted to show an increase of 0.2%. An ideal scenario for mortgage shoppers would be a higher unemployment rate than October’s 7.3%, a smaller increase in payrolls (or a decline) and no change in the earnings reading. If we are fortunate enough to hit the trifecta with all three, we should see the stock markets fall, bond prices rise and mortgage rates move much lower Friday. However, stronger than expected readings would likely fuel a stock rally and bond sell-off that would lead to higher mortgage rates.

October’s Personal Income and Outlays data is scheduled for early Friday morning also. This data measures consumers’ ability to spend and their current spending habits. This is important because consumer spending makes up over two-thirds of the U.S. economy. It is expected to show that income rose 0.3% and that spending increased 0.3%. Weaker than expected readings would mean consumers had less money to spend and were spending less than thought. That would be theoretically favorable news for bonds and mortgage pricing, although the Employment data will be the focus of Friday’s morning trading.

The final report of the week is the release of December’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates slightly if it shows a sizable miss from forecasts. Consumer sentiment or confidence is tracked because the more comfortable consumers are about their own financial situations, the more likely they are to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the economy, any related data is watched closely. Friday’s release is expected to show a reading of 75.4, which would be a small rise from last month’s final reading of 75.1. A large decline in confidence would be considered good news for the bond market and mortgage rates.

Overall, look for Friday to be the most active day of the week but we should see noticeable movement in rates Monday also. And in between those days there is plenty of data being posted that may move mortgage rates. The best candidate for calmest day is Tuesday with nothing in terms of relevant economic data set for release. With so much on tap this week, there is plenty of opportunity to see large swings in the major market indexes and mortgage rates. Accordingly, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.

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Weekly Mortgage Commentary-October 28, 2013

This week brings us the release of six economic reports and two relevant Treasury auctions for the bond market to digest in addition to another FOMC meeting. Most of the data is set for the first half of the week, so we could see plenty of movement in rates the first couple days. The data scheduled this week ranges from moderately to extremely important, so some reports will have a much bigger impact on trading than others. We also need to keep an eye on the stock markets as they can be heavily influential on bond market direction and mortgage rates.

 

The week kicks off Monday with the release of a moderately important manufacturing report. September’s Industrial Production report will be posted at 9:15 AM ET Monday, giving us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.3% increase in production output, indicating minor growth in the sector. Good news for the bond market and mortgage rates would be a decline in this data.

There are three reports scheduled for release Tuesday, two of which are very important to the financial and mortgage markets. The first is September’s Retail Sales report at 8:30 AM ET that measures consumer spending. This data is very important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Therefore, any related data is watched closely. If we see weaker than expected readings in this report, the bond market should respond favorably and mortgage rates should drop Tuesday morning. However, stronger than expected sales would fuel optimism about the economy and would likely lead to a stock rally that hurts bonds prices and pushes mortgage rates higher. Current forecasts are calling for a 0.1% decline in retail-level sales, meaning consumers spent a little less last month than they did in August. Good news for the bond market and mortgage pricing would be a larger decline in sales.

September’s Producer Price Index (PPI) is the second key report of the day, also at 8:30 AM ET. This is one of the two very important inflation readings we get each month. The index measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.2% increase in the overall index and a 0.1% rise in the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. A larger than expected increase could raise concerns in the bond market about future inflation, leading to higher mortgage rates Tuesday. However, weaker than expected readings should result in bond market strength and lower mortgage pricing.

October’s Consumer Confidence Index (CCI) is Tuesday’s last report. This Conference Board index will be released at 10:00 AM ET and gives us a measurement of consumer willingness to spend. It is expected to show a drop in confidence from last month’s 79.7 reading. That would mean that consumers felt a worse about their own financial and employment situations than last month, indicating they are less likely to make large purchases in the near future. That would be good news for the bond market because consumer spending makes up a significant part of our economy. As long as the reading doesn’t exceed the forecasted 74.1, we will likely see the bond market react favorably to this report.

Wednesday’s only economic data is also very important to the bond market. September’s Consumer Price Index (CPI) will be released at 8:30 AM ET Wednesday. It measures inflationary pressures at the very important consumer level of the economy and is one of the most important reports that the bond market gets each month. Analysts are expecting to see a rise of 0.1% in the overall index and an increase of 0.1% in the core data reading. A larger than expected increase in the core reading could raise inflation concerns, pushing bond prices lower and mortgage rates higher. Inflation is the number one nemesis of the bond market because it erodes the value of a bond’s future fixed interest payments, so when inflation is a threat, even down the road, bonds sell for discounted prices that push their yields higher. And since mortgage rates tend to follow bond yields, this leads to higher rates for mortgage borrowers.

This week’s FOMC meeting is a two-day meeting that begins Tuesday and adjourns Wednesday afternoon. There really is no possibility of the Fed changing key short-term interest rates this week. But market participants will be looking at the post-meeting statement for any indication of a change in Fed sentiment or possibly further development on tapering of their current bond buying program. Possible effects the government shutdown had on the economy will also be of interest to the markets. The meeting will adjourn at 2:00 PM ET Wednesday, so look for any reaction to the statement to come during afternoon hours.

There is no major economic news set for release Thursday, but there is a highly influential report scheduled for late Friday morning. That will come from the Institute for Supply Management (ISM), who will post their manufacturing index for October at 10:00 AM ET. This index measures manufacturer sentiment, which is important because it gives us an indication of manufacturing sector strength or weakness. It is considered to be one of the more important reports we see each month, partly because it is the first report every month that tracks the preceding month’s activity. Friday’s release is expected to show a reading of 55.0, indicating that manufacturer sentiment slipped from September’s level of 56.2. This means fewer surveyed business executives felt business improved during the month than in September, hinting at manufacturing sector weakness. A smaller than expected reading would be good news for bonds and mortgage rates, especially if it drops below the benchmark 50.0.

This week also has Treasury auctions scheduled the first three days. The only two that have the potential to influence mortgage rates are Tuesday’s 5-year and Wednesday’s 7-year Note sales. If those sales are met with a strong demand from investors, particularly Wednesday’s auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor interest may create selling in the broader bond market and lead to upward revisions to mortgage rates.

Overall, it appears Tuesday or Wednesday could be the most active day for mortgage rates and Thursday will probably be the lightest. The importance of Friday’s sole report makes it likely to be an active day also, although I suspect the most movement will take place the middle days. With data or other events relevant to mortgage rates scheduled four of the five days, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.