May 25th, 2009 9:01 AM by Lehel Szucs
This holiday shortened week brings us the release of six important economic reports or news releases. Two of the six are considered to be of fairly high importance to the bond market and mortgage pricing. The remaining reports are considered to be of moderate importance to the markets. The financial and mortgage markets are closed today in observance of the Memorial Day holiday and will reopen tomorrow morning.
The Conference Board will start the week's releases by posting their Consumer Confidence Index (CCI) at 10:00 AM tomorrow. This is one of the more important releases of the week because is measures consumer willingness to spend. If the index rises, it indicates that consumers feel better about their personal financial situations and are more apt to make large purchases. If confidence is sliding, analysts think consumer spending may slow in the near future. The latter is good news for the bond market because consumer spending makes up two-thirds of the U .S. economy. That should boost bond prices and push mortgage rates lower tomorrow morning. It is expected to show a reading of 42.0 after April's 39.2 reading.
The National Association of Realtors will give us the Existing Home Sales report Wednesday morning. This data tracks resales of homes in the U.S., giving us a measurement of housing sector strength. However, it is not considered to be of much importance to the bond market unless it varies greatly from forecasts. Current forecasts are calling for a small increase in sales between March and April.
We will get two monthly reports Thursday morning. The more important of the two is April's Durable Goods Orders data. This report gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket products. It is currently expected to show an increase in new orders of approximately 0.5%. If this report shows a stronger than expected reading, we should see mortgage rates rise because it indicates manufacturing growth. If it shows a smaller than expected rise, we could see rates improve Thursday morning.
April's New Home Sales data will be released late Thursday morning. This report gives us a measurement of housing sector strength and future mortgage credit demand. However, it is actually the least important release of the week and probably will not have much of an impact on mortgage pricing. It is expected to show a small increase in sales.
The first of two revisions to the 1st quarter Gross Domestic Product (GDP) will be released at 8:30 AM Friday. The second revision to this report comes next month but isn't expected to have much of an impact on the financial markets. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best indicator of economic growth. Last month's preliminary reading revealed a 6.1% decline in the annual rate of growth. Analysts expect a n upward revision to this reading with the consensus being a 5.5% decline. If the upward revision is stronger than expected, we may see the bond market react negatively and mortgage rates move higher.
The second report of the day and the last important data of the week will come from the University of Michigan who will update their Index of Consumer Sentiment for May. It is forecasted to show little change from this month's preliminary reading of 67.9. An upward revision would be considered a negative for bonds.
Overall, I think we have a busy week ahead of us. With the markets closed today, Tuesday's data will set the tone for the first part of the week. The big reports of the week are Tuesday's CCI and Thursday's Durable Goods. If Friday's GDP revision varies greatly from forecasts, it can also lead to sizable changes in rates. There are also a couple of Treasury auctions that are worth noting. The 5-year sale Wednesday and the 7-year auction on Thursday may influence bond trading and possibly mortgage rates if they are met with an exceptional demand or if there is lackluster interest from investors. There is a pretty good possibility of seeing mortgage rates change several times this week, so please proceed cautiously 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.
©Mortgage Commentary 2009