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Mortgage Rates (6/20/2010 - The Week Ahead)

June 21st, 2010 9:46 AM by Lehel S.

This will likely prove to be a fairly active week in terms of mortgage rate movement due to the economic data and other events that are scheduled. There are five economic reports scheduled for release, but in addition to the data another Federal Open Market Committee (FOMC) meeting will be held and another round of Treasury sales are on the calendar. Together, we have the makings of a potentially volatile week in the financial and mortgage markets.

There is no relevant economic news scheduled for release tomorrow. Tuesday brings us the first data with the release of May's Existing Home Sales report. The National Association of Realtors will give us figures on home resales late Tuesday morning. This data helps us measure housing sector strength and mortgage credit demand, but it usually takes a large variance from forecasts for it to cause a noticeable change to mortgage rates. It is expected to show an increase in sales from April to May. 

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Wednesday's only report is the release of May's New Home Sales. It is similar to Tuesday's Existing Home Sales report, but tells us how well sales of newly constructed homes were last month. It is expected to show a decline in sales, but will likely not have much of an impact on mortgage rates because this data tracks only the 15% of home sales that Tuesday's data does not.

There is an FOMC meeting that begins Tuesday and will adjourn Wednesday afternoon. It is widely expected that Mr. Bernanke and company will not change key short-term interest rates at this meeting. But, as we have seen so many times in the past, it is the post meeting statement that often creates the most volatility in the markets. They could give an opinion of the overall economy or inflation, hinting at a possible future move or lack of one. Statements like these could cause a knee-jerk reaction in the markets and possibly mortgage pricing Wednesday afternoon. 

The only important release scheduled for Thursday is May's Durable Goods Orders, which gives us an indication of manufacturing sector strength. It is known to be quite volatile from month to month and is expected to show a decline of 1.4% in new orders from April to May. A larger decline would be the ideal scenario for the bond market and could lead to a decline in mortgage pricing Thursday.

There are two reports being released Friday morning. The first is the final reading to the 1st Quarter Gross Domestic Product (GDP). This data is quite aged now (covers January through March) and will likely have little impact on the bond market or mortgage pricing unless it varies greatly from previous readings. Last month's first revision showed a 3.0% rise in the GDP, which is what analysts are expecting to see again. 

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. This index gives us a measurement of consumer willingness to spend. If consumers are more comfortable with their own financial situations, they are more apt to make large purchases in the near future. Since consumer spending makes up two-thirds of the U.S. economy, any related data has the potential to affect bond trading and mortgage rates. A downward revision would be considered good news for bonds and rates, but forecasts are calling for no change from this month's preliminary reading of 75.5. 

Also worth noting is the fact that the Fed will be selling more debt this week. These sales may influence trading enough to affect mortgage rates. There are sales every day except Friday but the two most likely to affect rates are Wednesday's 5-year Note sale and Thursday's 7-year Note auction. If they are met with a strong demand, we could see bond prices rise during afternoon trading. This could lead to afternoon improvements to mortgage rates also. But, if the sales draw a lackluster interest from investors, mortgage rates may move higher during afternoon trading those days.

Overall, tomorrow will likely be the quietest day of the week unless the stock markets stage a rally or sizable sell-off. The most active should be Wednesday with the FOMC meeting adjourning or Thursday due to the importance of the data being posted that day. Friday's news may also affect mortgage rates, but likely not as much as earlier days.

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... Lock 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 June 21st, 2010 9:46 AM



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