August 25th, 2008 8:40 AM by Lehel Szucs
This week brings us the release of eight relevant economic releases for the bond market to watch. This will also be a shortened week in the bond market as a result of the Labor Day holiday next Monday. This makes it quite likely that we will see a fair amount of volatility in the financial markets this week, and therefore quite possibly mortgage rates.
Tomorrow brings us the first piece of data for the markets to digest with July's Existing Home Sales. The National Association of Realtors will release this report, giving us a measurement of housing sector strength. It covers approximately 85% of home sales in the U.S., but usually does not have a major influence on bond trading and mortgage rates unless it varies greatly from analysts forecasts. It is expected to show a small increase from June's sales.
The Conference Board will post this month's Consumer Confidence Index (CCI) at 10:00 AM Tuesday. This index measures consumer wi llingness to spend, which is important because consumer spending makes up two thirds of the U.S. economy. A decline would indicate that consumers may not be making large purchases in the immediate future. That sign of economic weakness should drive bond prices higher, leading to lower mortgage rates Tuesday. It is expected to show a reading of 53.0, which would be an increase from July's 51.9.
Also scheduled for release Tuesday is July's New Home Sales data. This report is the least important release of the week. It will give us an indication of housing sector strength and mortgage credit demand like Monday's Existing Home Sales report does and also usually doesn't have a major impact on bond prices or mortgage rates.
The third and final event for Tuesday is the release of the minutes from the last FOMC meeting. There is a pretty good possibility of the markets reacting to them following their 2:00 PM ET release, especially if they show some divisiveness by its members. It will be interesting to see some of the Fed member's views on the economy and inflation and if they will hint what the Fed's next move may be.
The Commerce Department will post July's Durable Goods Orders Wednesday morning, giving us an important measure of manufacturing sector strength. This data tracks orders at U.S. factories for big ticket items, or products that are expected to last three or more years. A weaker reading than the expected 0.2% rise that is expected would indicate that the manufacturing sector is not as strong as thought. This would be good news for bonds and should lead to lower mortgage rates.
Thursday's only data is the first revision to the 2nd Quarter Gross Domestic Product (GDP). Last month's preliminary reading revealed a 1.9% pace of growth. A smaller than expected upward revision should help lower mortgage rates Thursday, especially if the inflation portion of t he release does not get revised higher. Current forecasts are calling for a 2.7% annual rate. There will be a final revision issued next month, but it probably will have little impact on mortgage rates.
Friday is also a multi-release day with the release of July's Personal Income and Outlays and the University of Michigan Index of Consumer Sentiment posting. The income and spending data measures consumer ability to spend and current spending habits. It is expected to show a decline of 0.1% in income and a 0.3% increase in spending. Weaker than expected numbers would be good news for the bond market and mortgage rates.
August's revision to the University of Michigan's Index of Consumer Sentiment is also due Friday morning. It gives us a measurement of consumer willingness to spend. It is expected to show an upward revision from August's preliminary reading of 61.7. If it revises lower, consumers were less confident about their perso nal financial situations than previously thought. This would be good news for the bond market and mortgage rates.
Overall, it is a shortened week but probably will be a very busy week. The bond market is expected to close at 2:00 PM ET Friday ahead of the Monday holiday. We will likely see the most activity in rates Tuesday morning, but Wednesday and Thursday are also important. If we manage to get weaker than expected results in the key reports and the Fed minutes don't show any surprises, we should see mortgage rates close the week lower than tomorrow's opening levels.
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.
©Mortgage Commentary 2008