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.

This Week’s Market Commentary

July 2, 2012

This week brings us the release of only three pieces of relevant economic data that may influence mortgage rates, but two of them are considered to be highly important. In addition, the Independence Day holiday falls in the middle of the week this year, so we have an early and full-day closure to work around.

Unlike many Mondays, tomorrow does bring us some very important economic data. This would be the Institute of Supply Management’s (ISM) manufacturing index for June late tomorrow morning. This index measures manufacturer sentiment by surveying trade executives on current business conditions. A reading above 50 means that more surveyed executives felt business improved during the month than those who felt it had worsened. Analysts are expecting a reading of 52.2. That would indicate that more manufacturers felt business worsened from the previous month, when we saw a 53.5 reading. Good news for bonds and mortgage rates would be a weaker than expected reading, particularly something below the recessionary threshold of 50.0.

The Commerce Department will post May’s Factory Orders data late Tuesday morning, which is similar to the Durable Goods Orders report that was released last week. The biggest difference is that this week’s report covers both durable and non-durable goods. It usually doesn’t have as much of an impact on the bond market as the durable goods data does, but can lead to changes in mortgage pricing if it varies greatly from forecasts because it measures manufacturing sector strength. Current expectations are showing a 0.4% increase in new orders from April’s levels. A decline in orders would be considered good news for the bond market and could help lower mortgage rates slightly Tuesday.

The U.S. financial and mortgage markets will be closed Wednesday in observance of the Independence Day holiday. They will also close early Tuesday afternoon ahead of the holiday and will reopen Thursday morning for regular trading hours. Considering recent events from Europe, who will treat Wednesday as any other day of business, we could see bond traders sell holdings before the 2:00 PM ET close Tuesday to protect themselves over the holiday. That raises the possibility of seeing an upward revision to mortgage rates Tuesday afternoon.

The last data of the week is arguably the single most important report we see each month. The Labor Department will post June’s unemployment rate, number of new payrolls added or lost and average hourly earnings early Friday morning. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, a large decline in payrolls and no change in earnings. Weaker than expected readings would likely help boost bond prices and lower mortgage rates Friday. However, stronger than expected readings could be extremely detrimental to mortgage pricing. Analysts are expecting to see the unemployment rate remain at 8.2%, with 100,000 jobs added and a 0.2% rise in earnings.

Overall, I am expecting to see a fairly active week for the financial markets and mortgage rates. We have a small increase in rates waiting for us tomorrow morning due to weakness in bonds late Friday. The most important day of the week is Friday, but tomorrow could also be a key day in determining whether rates move higher or lower on the week. Furthermore, the stock markets will also heavily affect bond trading if they rally or go into a sell-off any day of the week. Therefore, I recommend maintaining contact with your mortgage professional if still floating an interest rate.

This Week’s Market Commentary

June 25, 2012

This week brings us the release of six pieces of economic data in addition to a couple of Treasury auctions that have the potential to influence mortgage rates. None of the reports are considered to be highly important or labeled as market-movers, but they do carry enough significance to affect mortgage pricing if they show surprises in their results.

May’s New Home Sales report kicks off this week’s data late tomorrow morning. It is similar to last week’s Existing Home Sales report, but tells us how well sales of newly constructed homes were last month. It is expected to show an increase in sales, but will likely not have much of an impact on mortgage rates because this data tracks the small portion of home sales that last week’s report did not. I believe it will take a large rise in sales or a sizable decline for this data to influence mortgage rates.

June’s Consumer Confidence Index (CCI) is the second report of the week. It will be posted late Tuesday morning and is important to the financial markets because it measures consumer willingness to spend. If consumers are more confident about their own financial situations, they are more apt to make large purchases in the near future. If it shows a sizable increase in confidence from last month, we can expect to see the bond market falter and mortgage rates rise slightly. Current forecasts are calling for a reading of 64.0, down from last month’s 64.9 reading. The lower the reading, the better the news for bonds and mortgage rates.

May’s Durable Goods Orders will be posted early Wednesday morning, giving us an indication of manufacturing sector strength. It tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. This data is known to be quite volatile from month to month and is expected to show an increase of 0.5% in new orders from April to May. A large decline would be the ideal scenario for the bond market and would likely lead to a decline in mortgage pricing because it would indicate manufacturing sector weakness.

Thursday’s only monthly or quarterly economic data is the final reading to the 1st Quarter Gross Domestic Product (GDP). The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. However, this particular 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. Market participants are looking more towards next month’s release of this quarter’s initial GDP reading. Last month’s first revision showed a 1.9% rise in the GDP, which is what analysts are expecting to see again.
Friday has two reports scheduled, the first being May’s Personal Income and Outlays data at 8:30 AM ET. This report gives us an indication of consumer ability to spend and current spending activity. They are important because consumer spending makes up over two-thirds of the U.S. economy. If consumer income is rising, they have more money to spend each month. Analysts are expecting to see an increase of 0.1% in income and a 0.1% rise in the spending portion of the report. Declines in both of these readings would be good news for the bond market and mortgage rates.
The University of Michigan will close out this week’s data when they update their Index of Consumer Sentiment for May late Friday morning. This index gives us a measurement of consumer willingness to spend. As with Tuesday’s CCI, 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 over 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 74.1.
Also worth noting is the fact that the Fed will be selling more debt this week. These sales may influence broader bond trading enough to affect mortgage rates if they show strong or weak investor demand. 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, Tuesday, Wednesday and Friday’s data should bring some volatility in trading and mortgage rates. It is difficult to label one particular day as the most important as none of them stand out as critical. In fact, any day that has a sizable move in stocks could help determine which day was the most active for mortgage rates.