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Mortgage Rates (1/23/2011 - The Week Ahead)

January 24th, 2011 9:39 PM by Lehel S.

This week is busy in terms of economic data scheduled for release and will likely be an active week for mortgage rates. The number of releases is actually irrelevant due to the importance of the some of the reports. There are seven economic releases scheduled for the week in addition to the first Federal Open Market Committee (FOMC) meeting of the year and two potentially influential Treasury auctions. All but one of them are considered to be of moderate or high importance, meaning we should see quite a bit of movement in mortgage rates this week.

Tomorrow is the only day of the week with nothing of importance scheduled. The first of this week’s events is the release of January's Consumer Confidence Index (CCI) late Tuesday morning. This report is considered to be of moderate to high importance to the bond market and therefore can move mortgage rates. It is an indicator of consumer sentiment, which is important because waning confidence in their own fina ncial situations usually means that consumers are less willing to make large purchases in the near future. Since consumer spending makes up two-thirds of the U.S. economy, market participants are very attentive to related data. Analysts are expecting to see an increase from December’s reading, indicating a higher level of consumer confidence. A reading much smaller than the expected 53.5 would be ideal for the bond market and mortgage rates.





Wednesday’s only economic data is December's New Home Sales report at 10:00 AM ET. It is considered to be the sister release to last week's Existing Home Sales. Wednesday’s release is forecasted to show an increase in sales of newly constructed homes, but is not important enough to heavily influence mortgage pricing unless it varies greatly from forecasts.

Also Wednesday is this year's first FOMC meeting results. It will begin Tuesday and adjourn at 2:15 PM ET Wednesday. It is expected to yield no change to short-term interest rates, but as is often the case, traders will be looking for any indication of the Fed's next move and when they may make it. I believe that there is little chance of indicating a possible rate hike in the near future, but any hints of a change in theories or timetable by the Fed will cause afternoon volatility in the financial and mortgage markets.





Thursday morning brings us the release of December's Durable Goods Orders. This data helps us measure manufacturing strength by tracking new orders at U.S. factories for products that are expected to last three or more years, also known as big-ticket items. The data often is quite volatile from month to month, but is currently expected to show an increase in orders of approximately 1.5%. A smaller than expected increase would be considered good news for bonds and mortgage rates, but a slight variance likely will have little impact on Thursday’ s mortgage pricing.

Next up is Friday, which has three reports scheduled for release. The first of them is arguably the single most important reports that we see regularly. The initial reading of the 4th Quarter Gross Domestic Product (GDP) will be posted early Friday morning. This data is so important because it is considered to be the best measurement of economic growth. The GDP itself is the total sum of all goods and services produced in the United States. Its' results usually have a major impact on the financial markets and can cause significant changes in mortgage rates. There are three readings to each quarter's activity, each released approximately one month apart. The first reading, which usually carries the most significance, is expected to be an increase of 3.8%. A noticeably weaker reading would be great news for the bond market, questioning the pace of the economic recovery. That would likely fuel stock selling and a rally in bonds that would push mor tgage rates lower Friday morning. However, a stronger than expected reading would probably lead to bond selling and higher mortgage rates.

The 4th Quarter Employment Cost Index (ECI) is also scheduled for release early Friday morning. It measures employer costs for employee wages and benefits, giving us an indication of the threat of wage inflation. It usually has more of an effect on the bond market than the stock markets. Current forecasts are showing an increase of 0.4%. A lower than expected reading would be favorable to bonds and mortgage rates, but the GDP reading will be the biggest influence on trading and rates Friday morning.





The last report of the week is the revised reading to the University of Michigan's Index of Consumer Sentiment. This index is another measurement of consumer confidence, which is thought to indicate consumer willingness to spend. I don't see this data having much of an impact on the markets or mortgag e rates due to the importance of the GDP and ECI readings.

And if we didn't have enough to watch already, there are two relatively important Treasury auctions for the markets to digest. The Fed will auction 5-year and 7-year Treasury Notes Wednesday and Thursday, respectively. If they are met with a strong demand from investors, the broader bond market may rally during afternoon hours those days. However, a lackluster interest in the sales could lead to bond selling and higher mortgage rates.





Overall, look for Wednesday or Friday to be the biggest days for mortgage rates. Friday's GDP is the single most important piece of data this week, but we may see quite a bit of movement in rates Wednesday afternoon. If we see weaker than expected results from the most important reports, mortgage rates should close the week lower than last Friday's closing levels. If the data shows stronger than expected results, we may see mortgage rates move h igher for the week. This is of course, assuming that the Fed meeting doesn't reveal any surprises. I strongly recommend that fairly constant contact is maintained with your mortgage professional this week if still floating an interest rate.

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. 
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Posted by Lehel S. on January 24th, 2011 9:39 PM

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