Consumer Confidence

What’s Ahead for Mortgage Rates This Week: February 2, 2009

Consumer confidence reached an all-time low and 100,000 Americans were issued layoff notices last week, each playing a role in the mortgage market’s relative worsening.

For the third consecutive week, mortgage rates rose and average loan fees increased, too.

Amid all of the negative economic news, however, there were two bright spots worth identifying and discussing. They show that country may be closer to economic recovery than expected.

First, the supply of “used” homes for sale fell from 11 months to 9 months nationwide. This suggests that homebuyers are re-entering the housing market in force, a signal that home prices are nearing equilibrium.

And, second, the nation’s GDP — a measurement of the country’s complete economic footprint — didn’t fall by nearly as much as what the experts had predicted. A positive surprise like this makes us wonder about what else the Doomsday Economists may be wrong.

We won’t have to wonder long.

With this week comes copious amounts of data, legislation and rhetoric to influence mortgage rates. Some of the news-bites that mortgage markets will digest this week include:

• The Personal Consumption Expenditures Index report. PCE is a preferred inflation measurement and inflation is the enemy of mortgage rates. A high reading will pressure mortgage rates up.
• Retail stores report on same-store sales.
• The Pending Home Sales report. This notes the number of “homes under contract” and is a good gauge for buyer interest and the general health of housing.
• 20% of the S&P 500 firms will report earnings.
• Congress is expected to vote on the Stimulus package.

The biggest impact on rates, however, could come on Friday with the release of January’s jobs report. Employment data is always market-mover and with the press giving so much attention to layoffs lately, expect Wall Street to be extra jittery it.

Markets expect the economy lose a half-million jobs in last month.

(Image courtesy: Wall Street Journal Online)

Consumer Confidence

Weekly Economic Releases for Jan. 25th

This week is extremely busy in terms of economic data scheduled for release and will likely be another active week for mortgage rates. The number of releases is actually irrelevant due to the importance of the some of the reports. There are eight economic releases scheduled for the week in addition to the first Federal Open Market Committee (FOMC) meeting of the year. All but two of the releases scheduled are considered to be of moderate or high importance, meaning we should see quite a bit of movement in mortgage rates again this week.

The first report of the week is tomorrow’s release of December’s Existing Home Sales. It gives us a measurement of housing sector strength by tracking sales of newly constructed homes. It is one of the week’s least important reports, therefore, it will likely not have a significant impact on bond trading or mortgage rates. Current forecasts are calling for a small decline in sales.

December’s Leading Economic Indicators (LEI) will also be posted late tomorrow morning. This index attempts to measure economic activity over the next three to six months. It is considered to be of moderate importance to the bond and mortgage markets. Analysts are currently expecting to see a 0.3% decline, meaning that economic growth over the next few months will likely slow. A larger than expected drop would be good news for the bond market and mortgage rates, but an unexpected rise could lead to bond selling and an increase to mortgage rates tomorrow morning.

January’s Consumer Confidence Index (CCI) will be released Tuesday morning. This report is considered to be of high-importance to the bond market and therefore can move mortgage rates. It is an indicator of consumer sentiment, which is important because a decline would be construed as a sign that consumers may be less willing to make large purchases in the near future. Since consumer spending makes up two-thirds of the U.S. economy, market participants are very attentive to related data. A reading smaller than the expected 38.0 would be ideal for the bond market and mortgage rates.

There is no factual economic data scheduled for release Wednesday, but we will get the results of this year’s first FOMC meeting. It will begin Tuesday and adjourn at 2:15 PM ET Wednesday. It is expected to yield no change to short-term interest rate, but as is often the case, traders will be looking for any indication of the Fed’s next move. However, I am not expecting this meeting to have a major impact on the markets or mortgage rates because the Fed can’t lower key rates much more. There is little chance of indicating a possible rate hike in the near future, so I don’t believe that this meeting will have the influence they usually do.

Thursday morning brings us the release of December’s Durable Goods Orders. This data helps us measure manufacturing strength by tracking new orders at U.S. factories for products that are expected to last three or more years. The data often is quite volatile from month to month, but is currently expected to show a decline in orders of 1.8%. A larger than expected drop would be good news for bonds and mortgage rates.

December’s New Home Sales report, the sister release to Monday’s Existing Home Sales, will be posted late Thursday morning. It is expected to show another decline in sales of new homes, but is not important enough to heavily influence mortgage pricing.

Next up is Friday, which has three reports scheduled for release. The first of them is one of the most important reports that we see regularly. The initial reading of the 4th Quarter Gross Domestic Product (GDP) will be posted early Friday morning. This data is so important because it is considered to be the best measure of economic growth. The GDP itself is the total sum of all goods and services produced in the United States. Its’ results usually have a major impact on the financial markets and can cause significant changes in mortgage rates. There are three readings to each quarter’s activity, each released approximately one month apart. The first, which usually carries the most volatility, is expected to be a decrease of 5.2%. A weaker reading would be great news for the bond market, but the 5.2% decline would be the biggest quarterly drop in 26 years.

The 4th Quarter Employment Cost Index (ECI) is also scheduled for release early Friday morning. It measures employer costs for employee wages and benefits, giving us an indication of the threat of wage inflation. It usually has more of an effect on the bond market than the stock markets. Current forecasts are showing an increase of 0.7%. A lower than expected reading would be favorable to bonds and mortgage rates, but the GDP reading will be the biggest influence on trading and rates Friday morning.

The last report of the week is the revised reading to the University of Michigan’s Index of Consumer Sentiment. This index measures consumer confidence, which is thought to indicate consumer willingness to spend. I don’t see this data having much of an impact on the markets or mortgage rates due to the importance of the employment index and GDP figures.

Overall, look for Tuesday or Friday to be the biggest days for mortgage rates. Friday’s GDP is the single most important piece of data this week, but we may see quite a bit of movement in rates Tuesday also. If we see weaker than expected results from the most important reports, we should see rates close the week much lower than last Friday’s closing levels. If the data shows stronger than expected results, we may see mortgage rates move higher again this week. This is of course, assuming that the Fed meeting doesn’t reveal any surprises. I strongly recommend that fairly constant contact is maintained with your mortgage professional this week if still floating an interest rate.

If I were considering financing/refinancing a home, I would…. Float 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.

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