This Week’s Market Commentary

August 27, 2012

This week brings us the release of six economic reports that may affect mortgage rates along with two Treasury auctions and a Fed conference that has several key speakers. There is nothing of relevance scheduled for tomorrow, so look for the stock markets to drive bond trading and mortgage rates tomorrow. With data and related events scheduled every other day of the week, it is likely to be an active one for mortgage rates.

The Conference Board will post their Consumer Confidence Index (CCI) for August late Tuesday morning. This index measures consumer sentiment about their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling more confident in their own finances, they are more apt to make a large purchase in the near future, fueling economic growth. A decline in confidence would indicate that surveyed consumers probably will not be buying something big in the immediate future. That would be a sign of economic weakness and should drive bond prices higher, leading to lower mortgage rates Tuesday. It is expected to show a reading of 65.5, which would be a slight decline from July’s 65.9. The lower the reading, the better the news for bonds and mortgage rates.

Wednesday has two reports scheduled that can potentially influence mortgage pricing. The first is the first revision to the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. This reading is the second of three that we see each quarter. Last month’s preliminary reading revealed that the economy grew at an annual rate of 1.5%. Wednesday’s revision is expected to show that the GDP actually rose only 1.6%. A smaller than expected reading should help lower mortgage rates Wednesday, especially if the inflation portion of the release does not get revised higher. There will be a final revision issued next month, but it probably will have little impact on mortgage rates since traders will be more interested in the current quarter’s activity.

The Federal Reserve will release its Beige Book report at 2:00 PM ET Wednesday. This report details current economic conditions in the U.S. by Federal Reserve regions. It is believed to be a key source of data when the Fed meets for their FOMC meetings and is usually released approximately two weeks prior to each meeting. If it reveals any significant surprises or changes from the past, we may see movement in the markets and mortgage pricing as analysts adjust their theories on the Fed’s next move. Most likely though, it will be a non-event and will not lead to a noticeable change in mortgage rates.

July’s Personal Income and Outlays report will be released early Thursday morning, giving us a measurement of consumer ability to spend and current spending habits. It is expected to show an increase of 0.3% in income and a 0.5% increase in spending. Since consumer spending makes up over two-thirds of the U.S. economy, weaker than expected numbers would be considered good news for the bond market and mortgage rates.

Friday is a multi-release day with August’s revision to the University of Michigan’s Index of Consumer Sentiment and last month’s Factory Orders data both being posted late Friday morning. The sentiment index helps us track consumer willingness to spend similarly to Tuesday’s CCI. It is expected to show no change from August’s preliminary reading of 73.6. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates because waning confidence usually means that consumers are less likely to make large purchases in the near future. As with the CCI index, the lower the reading the better the news for bonds and mortgage rates.

July’s Factory Orders data measures manufacturing sector strength and is similar to last week’s Durable Goods Orders, but includes orders for both durable and non-durable goods. It is expected to show a 2.0% increase in new orders. A smaller than expected rise would be favorable for bonds, but I don’t see this data causing much movement in rates unless its results vary greatly from forecasts since the big-ticket products portion of the report was released last week.

Also worth mentioning are a couple of Treasury auctions that may affect bond trading and mortgage rates this week along with a speaking engagement by Fed Chairman Bernanke. The two relevant Treasure auctions are Wednesday’s 5-year Note and Thursday’s 7-year Note sales. Results of the auctions will be posted at 1:00 PM ET each day. If investor interest is strong in the auctions, 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.

Mr. Bernanke will be speaking Friday morning at the Jackson Hole Fed conference in Wyoming. He will be addressing current and future economic conditions, so his words are likely to influence the markets and mortgage pricing Friday. Also scheduled to speak are the European Central Bank and International Monetary Fund Presidents. What they will say and how it will impact the markets is difficult to predict, but there is a high probability of the markets reacting heavily to their words, so the event needs to be watched.
Overall, I believe it is going to be a fairly active week for the financial and mortgage markets. The calmest day will likely be tomorrow, but choosing the best candidate for the most important day isn’t as easy. Wednesday has two economic reports scheduled along with the 5-year Note auction, but Friday’s Jackson Hole conference can be a market mover by itself without the two economic reports that are scheduled that day. So, let’s go with Wednesday AND Friday as the key days of the week. Since it looks to be another active week, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate.

New Neighborhoods Spring Up in Old Locations

August 23, 2012

The housing industry is rethinking the types of homes they want to build and where to build them.
In cities, old industrial buildings and deserted warehouses are being torn down to make way for new housing.

Young Millennials and older Baby Boomers are rejecting traditional suburban homes in favor of urban living. These two generations make up almost half of the American population.

Many plan to live near city centers so they can walk to work, shops and restaurants or take public transportation. They prefer smaller homes because they’re single or have no kids. They don’t want to spend much free time maintaining their homes, and they don’t want to spend a lot on gasoline.

Many 30-something professionals also plan to live in city neighborhoods rather than in the suburbs. And they don’t plan to live in multi-story condos, according to Smart Growth America’s LOCUS, a coalition of real estate developers and investors who are in favor of urban projects.

This is a dramatic shift in the types of homes people want, and it’s probably not temporary, experts say.

This Week’s Market Commentary

This Week’s Market Commentary

August 6, 2012

This week is extremely light in terms of the number of economic reports that are scheduled for release that may influence mortgage rates. In fact, there are only two monthly or quarterly reports and neither is considered to be highly important to the markets. There are several Treasury auctions scheduled during the week, but only two of them are worth watching. This makes it likely that stock movement will heavily influence bond trading and mortgage rates several days.

There are two public speaking engagements by Fed Chairman Bernanke, neither of which is likely to cause volatility in the markets or mortgage pricing. The first is Monday morning when he will appear via prerecorded video at a conference in Boston. He is also hosting a town hall meeting on education Tuesday afternoon in Washington D.C. and will answer questions from people in attendance and via video feed. Both of these are considered to be of very low importance and have little chance to causing any havoc in the markets.

The first economic data of the week is Employee Productivity and Costs data for the second quarter that will be released early Wednesday morning. It will give us an indication of employee output per hour. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don’t see this being a big mover of mortgage pricing, but since it is the only data of the day in a week with little else scheduled, it may influence rates slightly during morning trading. Analysts are currently expecting to see an increase in productivity of 1.5% and a 0.4% rise in labor costs. A stronger than expected productivity reading and a smaller than expected increase in costs could help improve bonds, leading to lower mortgage rates Wednesday.

June’s Trade Balance report will be released early Thursday morning. It gives us the size of the U.S. trade deficit but is the week’s least important report and likely will have little impact on the bond market and mortgage rates. Analysts are expecting to see a $47.5 billion deficit, but it will take a wide variance to directly influence mortgage pricing.

Also worth noting are two important Treasury auctions this week. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as they are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced at 1:00 PM each sale day.

Overall, it is difficult to label one particular day as the most important with so little to choose from. Monday may be a little interesting considering the size of Friday’s stock rally that pushed the Dow higher by 217 points, which drove bond prices lower. We would not be surprised to see the negative tone extend into tomorrow’s bond trading and mortgage rates, especially if stocks open higher. We never recommend straying far from your mortgage professional if still floating an interest rate, however, the markets and mortgage pricing are likely going to be much calmer than recent weeks.