Our Real Estate Blog

Mortgage Rates (1/2/2011 - The Week Ahead)

January 3rd, 2011 10:11 AM by Lehel S.


This week bring us the release of only three monthly reports that are relevant to the bond market and mortgage rates, but two of them are considered to be highly important. In addition to those three reports, we also will get the minutes from the last FOMC meeting that may influence the markets and possibly mortgage rates.

The first report is the Institute for Supply Management’s (ISM) manufacturing index for December late tomorrow morning. This highly important index measures manufacturer sentiment. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. That indicates manufacturing sector strength rather than contraction. Analysts are currently expecting to see a 57.3 reading in this month’s release, meaning that sentiment strengthened from November’s 56.6. A smaller reading will be good news for the bond market and mortgage shoppers, while a hig her than expected reading could lead to higher mortgage rates tomorrow morning. 

The Commerce Department will post November’s Factory Orders data late Tuesday 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 late last week, 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 electronics and autos. Examples of non-durable goods are food and clothing. Analysts are expecting to see a decline of 0.4% 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. The larger the decline, the better the news for mortgage rates.

Also Tuesday is the release of the minutes from the last FOMC meeting. This will give m arket 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 shouldn’t affect the markets or mortgage rates until afternoon hours.

The final report of the week comes Friday morning when the Labor Department will post December's employment figures. The Employment report is arguably the 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 larger than expected drop in new payrolls and a decline in earnings would be ideal news for the bond market.

Current forecasts call for no change to the unemployment rate of 9.8%, 132,000 new jobs added to the economy and an increase in earnings of 0.1%. If we see weaker than expected results, mortgage rates should improve Friday. However, stronger than expected readings will likely renew last month’s optimism about the economy, pushing mortgage rates sharply higher.

Also worth mentioning is an appearance by Fed Chairman Bernanke in front of the Senate Budget Committee late Friday morning. We will give testimony about monetary policy, economic conditions and fiscal issues. The markets pay close attention whenever he speaks, so any surprises in his words will cause volatility in the financial markets and mortgage rates.

Overall, the key data of the week will be Friday’s Employment report, but look for tomorrow and Tuesday to be active due to the economic data and FOMC minutes scheduled. If they give us favorable results, mortgage rates will likely move lower for the week. But if not, we can expect to see mortgage rates move higher. I believe this week’s data will be a good opportunity to contradict the speculation of economic strength that led to the spike in mortgage rates last month. If they do show soft numbers, there is a good possibility of seeing a sizable portion of the jump in bond yields reversed, leading to significant improvements to rates.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Posted in:General
Posted by Lehel S. on January 3rd, 2011 10:11 AM



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