Mortgage Market Update

Monday’s bond market initially opened in negative territory but has since rebounded into positive ground. The opposite can be said for stocks as they first looked to be moving higher today but are now mixed with the Dow down 10 points and the Nasdaq up 6 points. The bond market is currently up 3/32, which should improve this morning’s mortgage rates by approximately .125 of a discount point from Friday’s morning levels. We did see some strength late Friday, however, I don’t believe it was enough of a move for many lenders to improve rates that late in the week. They most likely opted for this morning’s open to reflect that improvement.

There is nothing of relevance to mortgage rates in terms of economic releases scheduled for release today. The markets are watching the Italian elections and exit polls are being attributed to the rebound in bond prices this morning. Today is the only day of the week that we don’t have something scheduled here that is expected to influence mortgage rates. The rest of the week brings us the release of seven economic reports to be concerned with in addition to some very important testimony from Fed Chairman Bernanke and two potentially relevant Treasury auctions. One of the reports is considered to be very important, but nearly all of the week's releases have the potential to affect mortgage rates.

The first piece of data is January's New Home Sales report at 10:00 AM ET tomorrow. This is the least important report of the week, and is the sister report to last week's Existing Home Sales data. They measure housing sector strength and mortgage credit demand, but usually do not have a significant impact on bond trading or mortgage rates unless they show significant surprises. This report is expected to show an increase in sales, hinting at strength in the new home portion of the housing sector. Ideally, the bond market would prefer to see housing sector weakness because it makes a broader economic recovery more difficult.

Tomorrow also has February's Consumer Confidence Index (CCI) being posted during late morning trading. This Conference Board index measures consumer confidence in their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling good about 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 economy, related data is considered important in terms of gauging economic activity. It is expected to show an increase in confidence from 58.6 in January to 62.0 this month. A lower reading would be considered good news for bonds and mortgage rates since it would indicate consumers are less likely to make a large purchase in the near future.

The biggest news of the day tomorrow will be Fed Chairman Bernanke’s semi-annual testimony on the status of the economy at 10:00 AM ET. He will be speaking to the Senate Banking Committee tomorrow morning and the House Financial Services Committee Wednesday. Market participants will watch his words very closely. He is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what he says during this testimony. Look for him to address the unemployment and housing sectors along with our budget stalemate and their impact on the overall economy. His testimony begins with a prepared statement then is followed by Q & A with committee members. I am expecting to see the markets fluctuate greatly tomorrow morning, possibly affecting mortgage rates also. The first day of testimony almost always causes the most volatility because the prepared statement made by the Chairman on the second day usually differs little from that of the first day.

In addition to the economic data and Fed testimony, tomorrow also has the first of two Treasury auctions that can potentially affect bond trading and mortgage pricing. 5-year Notes will be sold tomorrow and 7-year Notes go to auction Wednesday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates.

Overall, I am expecting tomorrow to be the most important day of the week for mortgage rates. Some of Friday’s data is considered highly important, so we may see a fair amount of movement in the markets and mortgage pricing that day also. We will also be watching progress on the automatic budget cuts that are scheduled to take effect Friday (March 1st) and the major stock indexes (Dow at 14,000) for direction of mortgage rates. There is little doubt that this will be an extremely active week in the markets and likely mortgage rates too.

DEAR JENNY: What type of loan do I need?

"I want to purchase a home and need additional money to renovate the house."

Jenny recommends: FHA Streamline 203k
Easy to use program specifically designed for those who wish to make improvements on a home they own, or would like to buy. Allows you to finance repair costs up to $35,000 - within your FHA purchase or refinance itself.

"I want to purchase a HUD home but it needs minor repairs."

Jenny recommends: FHA Repair Escrow 203b

Intended to facilitate uncomplicated rehabilitation to a home being purchased from HUD. The funds for the repairs and reserve contingency are borrowed and cannot be more than $5,000 combined.

"I want to purchase a mobile home."

Jenny recommends: Manufactured Home Loan

Our financing program offers Manufactured home loans for clients with FICOs as low as 620.

"I want to purchase a home in a rural area."

Jenny recommends: Guaranteed Rural Housing Loan

Designed to assist households in obtaining housing in rural areas. Loans are limited to applicants with incomes that do not exceed state and local Rural Development (RD) median income limits and property designated as rural by RD.

"I want to build a new manufactured home and purchase the lot too."

Jenny recommends: One Time Close, Construction to Permanent Loan

A true one-time close construction to permanent loan for new manufactured and modular homes. Finances lot purchase and a permanent loan all wrapped in one.

Mortgage Market Update

This week brings us the release of five pieces of economic data for the bond market to digest along with the minutes from the most recent FOMC meeting. Making things a little more interesting is the fact that all of the week’s events take place over only two days. The financial markets will be closed today in observance of the President's Day holiday.

There is nothing of relevance scheduled to be posted Tuesday. The Labor Department will release their Producer Price Index (PPI) for January early Wednesday morning. It measures inflationary pressures at the producer level of the economy and is considered to be one of the key measures of inflation we see each month. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. It is expected to show an increase of 0.3% in the overall reading and a 0.1% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about future inflation that make long-term securities less attractive to investors.

January's Housing Starts will also be posted early Wednesday morning, giving us an indication of housing sector strength and mortgage credit demand by tracking new housing construction starts. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for a fairly sizable decline in starts of new housing. That would be favorable news for the bond market and mortgage rates because it would point towards economic weakness. A weak housing sector makes a broader economic recovery less likely in the near future.

Wednesday also brings us the release of the FOMC minutes. Traders will be looking for any indication of the Fed's next move regarding monetary policy, particularly any discussion about modifying the Fed’s current bond buying programs. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may lead to afternoon volatility Wednesday, or they may be a non-factor. However, they do carry the potential to influence mortgage rates so they should be watched.

The sister report to the PPI will be posted early Thursday morning when January's Consumer Price Index (CPI) is released. The difference between the two is that the CPI measures inflationary pressures at the more important consumer level of the economy. With exception to maybe the Employment report, the CPI is the single most important report that we see each month. Its results can have a huge impact on the financial markets, especially on long-term securities such as mortgage-related bonds. It is expected to show a 0.1% increase in the overall index and a 0.2% rise in the more important core data. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall Thursday.

January's Existing Home Sales report will be released by the National Association of Realtors late Thursday morning. It tracks home resales throughout the country, giving us a measurement of housing sector strength. It is expected to show a slight decline in sales of existing homes, meaning the housing sector remained fairly flat during the month. Ideally, the bond market would like to see a sizable decline in sales because weak housing is one of the hurdles that the economy must overcome to fully recover from the past recession. The longer it takes for the housing market to gain momentum, the longer it will take the broader economy to do the same.

Also late Thursday morning will be the release of the Leading Economic Indicators (LEI) for January. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.3% increase, meaning that economic activity may rise in the near future. A smaller than expected increase would be good news for the bond market and mortgage rates, but the CPI draws much more attention than the LEI. Therefore, for this report to influence mortgage pricing, it will have to show a sizable variance from forecasts and the CPI will have to match estimates.

Overall, I am expecting Thursday to be the most active day for mortgage rates, but Wednesday’s releases are also enough to cause noticeable movement. The least important day is probably Friday as we could see changes to rates Tuesday morning after the long weekend. I am still closely tracking the Dow since it has been unable to break above 14,000 and remain there. The 10-year Treasury Note is still above 2.00%. If it falls below this level and the Dow remains below 14,000, we could be in for a nice rally in mortgage pricing.

Mortgage Market Update

This week brings us the release of only three pieces of monthly economic data that is relevant to mortgage rates in addition to two Treasury auctions. One of the economic reports is considered highly important to the markets, but the others are not likely to be market movers. We still could see a fair amount of movement in mortgage rates though, especially if stocks make a sizable move upward or downward.

Nothing of concern is due Monday or Tuesday morning, leaving bond trading to be driven by the stock markets the first part of the week. If the major stock indexes move higher, we will probably see funds move away from bonds and into stocks. This would lead to higher mortgage rates as bond prices and yields move in opposite directions. Mortgage rates tend to follow bond yields, so we prefer to see bond prices go up, pushing rates lower.

The week's first release is one of the more important ones we get each month. The Commerce Department will post January's Retail Sales data early Wednesday morning. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched quite closely. If Wednesday's report reveals weaker than expected retail-level sales, the bond market should thrive and mortgage rates will fall since it would be a sign that the economy is not as strong as many had thought. However, a stronger reading than the 0.1% increase that is expected could lead to higher mortgage rates Wednesday.

January's Industrial Production data will be released mid-morning Friday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.2% increase in production from December to January. A decline in output would be good news and should push bond prices higher, lowering mortgage rates Friday. 

February's preliminary reading to the University of Michigan's Index of Consumer Sentiment will be released late Friday morning. This index measures consumer willingness to spend and also usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 73.5, down slightly from January's final reading of 73.8. That would indicate consumers were a little less optimistic about their own financial situations than last month and are less likely to make large a purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered slightly favorable news for bonds and mortgage pricing.

The two important Treasury auctions come Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important of the two as it will give us an indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would likely result in upward afternoon revisions to mortgage rates.

Overall, I believe we will see the most movement in rates the middle part of the week. The Dow closed just under 14,000 Friday, so we will also be watching it for an indication of bond movement. I believe that failure to break above that level could mean a downward leg in stocks that would boost bond prices and improve mortgage rates. I see Wednesday as the likely candidate for the most important day and Tuesday being the least active, assuming stocks remain calm most of the week.

Mortgage Market Update

Monday’s bond market has opened in positive territory as stocks kick the week off in negative ground. The Dow is currently down 96 point while the Nasdaq has lost 15 points. The bond market is currently up 12/32, but due to fairly significant weakness late Friday, we may not see much of an improvement in this morning’s mortgage rates if comparing to Friday’s morning pricing. 

The Commerce Department gave us today’s only relevant economic data with the release of December's Factory Orders data late this morning. They announced that new orders for durable and non-durable goods rose 1.8% in December when analysts were expecting to see a 2.4% increase. That means the manufacturing sector did strengthen at the end of the year, but at a slower pace than many had thought. Therefore, we can consider the data fairly good news for the bond market and mortgage pricing.

Tomorrow has nothing of relevance scheduled for release. The rest of the week has only two more pieces of monthly economic data scheduled and neither of them is considered to be highly important to mortgage rates. While that would normally not be something to look forward to, it should be welcomed news following the beating mortgage rates have taken over the past couple weeks, especially if the major stock indexes continue to lose ground.

Overall, I am expecting a much calmer week in the mortgage market than we have seen the past couple. With little economic data to drive bond trading, look for the stock markets to play a major role in bond movement and mortgage rate changes. If the major stock indexes extend their recent rally that closed the Dow above 14,000 Friday for the first time since Oct 2007 (but has been lost this morning), we could see bond prices fall and their yields move further above 2.00%. Since mortgage rates tend to follow bond yields, this would be bad news for mortgage shoppers. However, if stocks extend this morning’s selling, we should see bond prices continue to rise and mortgage rates move lower this week.