July 26th, 2009 9:41 PM by Lehel Szucs
There are several important reports scheduled for release this week that are likely to affect mortgage pricing. The first is tomorrow's release of June's New Home Sales that gives us a measurement of housing sector strength and mortgage credit demand. It is expected to show an increase in sales of newly constructed homes, indicating that the housing sector gained some strength. That would be considered negative news for bonds, but since this data tracks only 25% of all home sales it usually has little impact on the bond market and mortgage rates unless it varies greatly from forecasts.
The Conference Board will post their Consumer Confidence Index (CCI) for July late Tuesday morning. This index measures consumer sentiment, giving us an idea of consumer willingness to spend. This is important because consumer spending makes up two-thirds of the U.S. economy. If the CCI reading is weaker than expected, we may see bond prices rise and mortgage rates drop Tuesd ay. Current forecasts are calling for a reading of 48.7, which would be a lightly lower reading than June's reading.
Wednesday brings us two events that are relevant to mortgage rates. The first will come from the Commerce Department when they will post June's Durable Goods Orders at 8:30 AM ET. Current forecasts are currently calling for a decline in news orders of 0.5% from May to June. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items. These are products that are expected to last at least three years. A stronger than expected number may lead to higher mortgage rates Wednesday morning. If it reveals a much larger than expected decline, mortgage rates should drop. It should be noted that this data is known to be extremely volatile from month to month, so a minor difference between forecasts and the actual reading may not move mortgage rates much.
The Federal Reserve will release its Beige Book report Wednesday afternoon. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by region throughout the U.S. Since Fed Chairman Ben Bernanke's testimony to Congress last week gave us a recent update, I don't think we will see any significant surprises in this report. Therefore, we will likely see little movement in mortgage rates Wednesday afternoon as a result of this report.
There is no relevant monthly or quarterly data scheduled for release Thursday, but there are two releases scheduled to be posted Friday morning. The first is the preliminary reading of the 2nd Quarter Gross Domestic Product (GDP), which is considered to be the best indicator of economic activity. It is the sum of all goods and services produced in the U.S. and usually has a great deal of influence on the financial markets. This reading is arguably the single most important we get regularly. Current forecasts are estimating that the economy shrank at a 1.5% annual rate during the second quarter. A smaller decline will probably hurt bond prices, leading to higher mortgage rates Friday. But a larger than expected decline would likely fuel a bond market rally and lead to lower mortgage pricing.
The second report of the day Friday is the 2nd Quarter Employment Cost Index (ECI) that measures employers' costs for wages and benefits. It is considered to be an important measurement of wage inflation and can have a pretty big impact on the bond market and mortgage rates if it varies much from forecasts. If it shows a rapid increase, raising inflation concerns, the bond market may drop and mortgage rates rise. It is expected to reveal an increase of 0.3%.
Also worth mentioning are a couple of Treasury auctions that may affect bond tradi ng and mortgage rates this week. The two most important are Wednesday's 5-year Note and Thursday's 7-year Note sales. The last auctions of these securities were met with very good demand from investors. That led to bond strength following the sales. Results of this week's auctions will be posted 1:00 PM ET each day. If investor interest is strong again, we can expect the broader bond market to rally and mortgage rates to move lower. However, lackluster demand could lead to bond selling and higher mortgage rates Wednesday and Thursday afternoons.
Overall, it likely will be a fairly active week in the mortgage market. With several important economic reports on tap, we will likely see noticeable movement in mortgage rates more than one day. The most important report of the week is Friday's preliminary GDP reading, making it one of the most important days of the week. But it is difficult to say which day we can expect to see the most movement in rates as several of releases and scheduled events have the potential to influence mortgage rates.
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