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Mortgage Rates (11/28/2010 - The Week Ahead)

November 29th, 2010 1:44 PM by Lehel S.

There are six pieces of economic news that may affect mortgage rates this week. Some of the data is considered highly important to the financial and mortgage markets, so it will likely be another active week for mortgage rates. Even though there is no relevant data being posted tomorrow, we may still see a change in mortgage rates due to weekend overseas developments, particularly the Korean crisis. In times of international turmoil, investors often seek safe-haven in U.S. securities from the volatility in world stock markets that usually takes place during the crisis. If the Korean situation does not subside soon, the bond market may benefit as investors move to protect themselves.

November’s Consumer Confidence Index (CCI) will be released late Tuesday morning by the Conference Board. It gives us a measurement of consumer willingness to spend. If consumer confidence is rising, analysts believe that consumers are more apt to make lar ger purchases, essentially fueling economic growth. This makes long-term securities such as mortgage-related bonds less attractive to investors and usually leads to higher mortgage rates. Analysts are expecting to see an increase in confidence from last month’s level, meaning consumers were more optimistic about their own financial situations this month than they were last month. A weaker reading than the 52.0 that is expected would be good news for mortgage rates, while a stronger reading could push mortgage rates higher Tuesday. 

The next piece of data that we need to be concerned with comes early Wednesday morning when revised 3rd Quarter Productivity numbers are posted. 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 economi c 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 2.4%, up from the previous estimate of 1.9%. 

November’s manufacturing index from the Institute for Supply Management (ISM) will be posted at 10:00 AM ET Wednesday. This index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. Current forecasts call for a small decline in sentiment from October to November. October’s reading was previously announced as 56.9. A weaker reading than the expected 56.4 would be good news for the bond market and mortgage rates. A reading above 50 means that more surveyed trade 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 sentim ent indicates a slowing manufacturing sector and makes a broader economic recovery less likely.

Wednesday’s third report will be released during afternoon hours. 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 region. That information is relied on heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any significant surprises. More times than not, 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 Labor Department will post November’s Employment report early Friday morning. This is arguably the most important monthly report we see. It is comprised of many statistics and readings, but the biggest ones are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts call for no change in the unemployment rate of 9.6% while 130,000 new jobs were added to the economy. The income reading is forecasted to show an increase of 0.1%. An ideal scenario for mortgage shoppers would be a higher unemployment rate than 9.6%, a smaller increase in payrolls 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 lower Friday. However, stronger than expected reading would likely fuel a stock rally and bond sell-off that would lead to higher mortgage rates. 

Also scheduled for release Friday is October’s Factory Orders. This report is similar to last week’s Durable Goods Orders release by giving us a measurement of manufacturing sector strength, except this one includes orders for both durable and non-durable goods. This data usually is n’t a major influence on bond trading, but there is little chance of it impacting mortgage rates this Friday because the Employment report is an extremely important report. Analysts are expecting to see a decline in new orders of approximately 1.2%. 

Overall, the most important day of the week is Friday with the employment figures being released, but we may also see sizable movement in rates Wednesday. Friday’s employment data could cause a significant change in rates, but Wednesday’s ISM index is also one of the more important reports we see each month. If Friday’s data reveals stronger than expected results we may see rates spike higher after its release, possibly erasing any gains from the week. It will probably be the key to rates moving lower or higher for the week. I suspect it will be another fairly active week for the markets and mortgage pricing, so it would be prudent to maintain contact with your mortgage pr ofessional 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... Lock 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 November 29th, 2010 1:44 PM



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