Mortgage Market Update

Wednesday’s bond market opened in negative territory, despite weaker than expected housing news. The major stock indexes fluctuated in early trading, but the Dow and Nasdaq are both currently showing a loss of approximately 10 points. The bond market is currently down 12/32, but we will still likely see a slight improvement in this morning’s mortgage pricing due to strength in bonds late yesterday.

The National Association of Realtors said late this morning that home resales fell 0.8% last month, indicating further housing sector weakness. Analysts were expecting an increase in sales, making this good news for the bond market and mortgage rates. Unfortunately, it appears that bond traders aren’t too impressed by the data.

Tomorrow has two economic reports scheduled for release, neither of which is considered to be highly important. The first will come at 8:30 AM ET when the Labor Department gives us last week’s unemployment figures. They are expected to announce that 411,000 new claims for unemployment benefits were filed last week. This would be an increase from the previous week, making it favorable news for the bond market and mortgage rates. The higher the number of new claims, the better the news for mortgage pricing. However, since this report tracks only a single week’s worth of initial claims, it likely will not heavily influence the markets or mortgage rates unless it shows a sizable drop or spike in new claims.

June's Leading Economic Indicators (LEI) will be posted at 10:00 AM tomorrow morning. This Conference Board index attempts to measure economic activity over the next three to six months. While it is not a factual report, it still is considered to be of moderate importance to the bond market. It is expected to show a 0.3% increase, meaning that we may see a gain in economic activity over the next few months. A smaller rise in the index, or better yet a decline, would be good news for the bond and mortgage markets.

Mortgage Market Trend

The near-term trend trajectory for mortgage interest rates hinges on the current pace of inflation - both at the factory gate and on Main Street.

Market participants expect Wednesday's Producer Price Index (released at 8:30 a.m. ET) to show an overall gain of 0.8% driven by higher food and energy prices -- while Thursday's Consumer Price Index (released at 8:30 a.m. ET) is projected to show a composite gain of a more modest 0.3%. As long as the actual values for these two big inflation reports match or fall below their respective forecast mortgage interest rates will likely move sideways to perhaps fractionally lower. That's the good news. The bad news is that if one, or both, of these reports exceed the consensus estimate -- mortgage investors will almost certainly be quick to push mortgage interest rates higher.

This is not the time to aggressively take mortgage market risk - especially for loans planning to "lock" within the next five trading days.

Mortgage and Economic News This Week 01-31-11

This week is extremely busy in terms of economic data scheduled for release and will likely be another active week for mortgage rates. There are five economic releases scheduled for the week, some of which are known to be extremely influential on the financial and mortgage markets. All five of these reports are considered to be of moderate or high importance, meaning we should see quite a bit of movement in mortgage rates this week.

The first report of the week is January's Personal Income and Outlays data tomorrow morning, which gives us an indication of consumer ability to spend and current spending habits. This is important because consumer spending makes up two-thirds of the U.S. economy. Current forecasts call for an increase in income of 0.5% while spending is expected to rise 0.6%. Larger increases would be good news for the stock markets and could hurt bond prices, driving mortgage rates higher tomorrow. Smaller than expected increases would be considered good news for mortgage rates.

Tuesday also has only one economic report with the Institute of Supply Management's (ISM) manufacturing index. This index tracks manufacturer sentiment by rating surveyed trade executives' opinions of business conditions. It is usually the first economic data released each month and is one of this week's very important reports. Current forecasts are calling for a reading in the neighborhood of 57.5 that would be an increase from December's reading. The lower the reading, the better the news for the bond market and mortgage rates because weak sentiment indicates a slowing manufacturing sector.

Wednesday has no government reports scheduled or data that is considered likely to impact mortgage rate. However, there are a couple of private sector employment-related reports due to be released. They normally would not be of much concern, but one of them showed an unexpected spike in new hires recently that caused selling in bonds and an increase in mortgage rates. I still am not too concerned about their results, but the potential does exist that a significant variance in the numbers could lead to changes in mortgage pricing.

Employee Productivity and Costs data for the 4th quarter will be released early Thursday morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing. If it varies greatly from analysts' forecasts of a 2.2% increase, we may see some movement in mortgage rates. However, the markets will be much more interested in Friday's data, so a slight difference shouldn’t cause a noticeable movement in mortgage rates.

Late Thursday morning, December's Factory Orders data will be posted. It is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is one of the less important reports of the week, but can influence mortgage pricing if it varies greatly from forecasts. Analysts are expecting a 0.7% decline in new orders, hinting at manufacturing sector weakness.

Friday's data is by far the most important of the week. The Labor Department will post January's Employment data early Friday morning, giving us the U.S. unemployment rate and the number of jobs added or lost during the month among other related statistics. Analysts are expecting to see the unemployment rate rise from 9.4% to 9.6% and that approximately 150,000 new jobs were added to the economy. An increase in unemployment and a loss in payrolls would be great news for the bond market. It would probably create a bond market rally, leading to lower mortgage rates Friday morning. However, if Friday's report reveals stronger than expected results, we can expect to see mortgage rates move higher.

Overall, look for tomorrow, Tuesday or Friday to be the biggest day for mortgage rates. Friday's Employment report is the most important piece of data, but Tuesday’s ISM Index draws a lot of attention also. We could also see movement in rates tomorrow morning following the activity at the end of last week. If we get weaker than expected results from Tuesday's ISM report and Friday's employment data, we should see rates close the week lower than last Friday's closing levels. If the data shows stronger than expected results, we may see mortgage rates move higher for the week. With some very important data being posted over the next five days, I strongly recommend keeping fairly constant contact with me if you are still floating an interest rate.