Our Real Estate Blog

Mortgage Rates (10/3/2010 - The Week Ahead)

October 4th, 2010 11:07 AM by Lehel S.

This week brings us the release of only two monthly economic reports that are likely to influence mortgage rates. However, one of those two releases is extremely important to the financial and mortgage markets. We start the week with one of them and end it with the more important one. In between, we can expect the stock markets to drive bonds prices and mortgage rates. If the major stock indexes extend September's gains, the bond market will likely move lower this week. As bond prices drop, their yields move higher. And since mortgage rates tend to follow bond yields, we would prefer to see stock weakness and bond prices to move higher. 

Tomorrow's data will come from the Commerce Department, who will post August's Factory Orders data at 10:00 AM ET. This manufacturing sector report is similar to last week's Durable Goods Orders release, but also includes orders for non-durable goods. It can impact the bond market enough to change mortgage rates if it va ries from forecasts by a wide margin. With it being the day's only release and half of this week's data, the markets may have a larger reaction to its results than they normally would. Analysts are forecasting a decline of 0.4% in new orders, meaning manufacturing activity slowed in August. This would be good news for the bond market and mortgage pricing, but I believe we will need to see a larger decline than 0.4% for this data to create an improvement in rates.

Tuesday, Wednesday and Thursday have nothing of concern scheduled. There are a couple of private sector reports due to be posted, but none of them have the potential to cause significant movement in mortgage rates. We will get last week's unemployment numbers from the Labor Department Thursday morning, but since it tracks only a single week's worth of new claims, its impact on the markets and mortgage rates is usually minimal. Worth noting though is the fact that this Thursday's report will cover the last week of the month that Friday's monthly report will include. Therefore, a significant surprise in Thursday's numbers could cause some analysts to revise their estimates for Friday's report and may influence mortgage rates slightly.

The Labor Department will post September's Employment report early Friday morning. This report will reveal the U.S. unemployment rate, number of new payrolls added or lost during the month and average hourly earnings. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, falling payrolls and a drop in earnings. 

If this report gives us weaker than expected readings, bond prices should move higher and we should see lower mortgage rates Friday. However, stronger than forecasted readings could be disastrous for mortgage pricing. Analysts are expecting to see the unemployment rate rise b y 0.1% to 9.7%, little change in payrolls from August's level and a 0.1% increase in earnings.

Overall, I suspect we will have a fairly quiet first part of the week with volatility increasing as the week progresses. Labeling Friday as the most important day is easy due to the importance of the Employment report and the lack of data scheduled other days. We may see movement in rates from day-to-day, but I believe we will see the most movement the latter part of the week.

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 October 4th, 2010 11:07 AM

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