Mortgage Rate Advisory

Here's your Daily Commentary report compliments of Jeff Drew and Star Mortgage!

This week is packed with relevant economic news in addition to another FOMC meeting. All seven of the reports are considered to be at least moderately important while several are considered very important to the markets and mortgage rates. This makes it likely that we will see plenty of movement in mortgage pricing over the next several days.

The first report comes late Tuesday morning when the Consumer Confidence Index (CCI) for April will be released. This Conference Board index is a key indicator of future spending by consumers. The group surveys 5000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security and investments, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation concerns to a minimum. But, a sizable increase could hurt the bond market, pushing mortgage rates higher Tuesday. It is expected to show a reading of 28.8, which would be an increase from March’s 26.0 reading.

Wednesday brings us the release of a very important report along with the FOMC meeting results. The report is the preliminary version of the 1st Quarter Gross Domestic Product (GDP). This is arguably the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best indicator of economic growth or contraction. I expect this report to cause major movement in the financial markets Wednesday and therefore the mortgage market also. Analysts are expecting to see a decline in output at an annual rate of 4.9%. A larger decline would be ideal for mortgage rates. But, a stronger than expected reading would almost certainly cause stock prices to rise and bond prices to fall, leading to higher mortgage rates Wednesday morning.

This week’s FOMC meeting will begin on Tuesday but will not adjourn until Wednesday afternoon. It will likely adjourn with an announcement of no change to key short-term interest rates, but we may see some volatility in the markets following the 2:15 PM ET post-meeting statement.

The next report of the week is the 1st Quarter Employment Cost Index (ECI) Thursday morning, which tracks employer costs for wages and benefits. This gives us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns cause the bond market to fall and mortgage rates to rise. A smaller than expected increase would be good news for the bond market and mortgage pricing. Current forecasts are showing a rise of 0.5%.

March’s Personal Income & Outlays is the second of two reports due to be posted Thursday morning. This data helps us measure consumers' ability to spend and current spending habits, which is important to the mortgage market due to the influence that consumer spending related information has on the financial markets. If a consumer's income is rising, they are more likely to make additional purchases. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.2% decline in income and a 0.1% drop in spending. The lower the reading, the better the news for bonds for both portions of the report.

There are three reports scheduled for release late Friday morning. The first is the University of Michigan’s update to their Index of Consumer Sentiment for April. This report gives us an indication of consumer sentiment. I don’t expect it to have a significant impact on bonds and mortgage pricing unless it varies greatly from forecasts Current forecasts are calling for a small downward revision to 61.5.

The second is March’s Factory Orders data at 10:00AM. This is a fairly important release because it measures manufacturing sector strength. It is similar to last week’s Durable Goods Orders, except this report includes non-durable goods such as food and clothing. Generally, the market is more concerned with the durable goods orders like refrigerators and electronics than items such as cigarettes and toothpaste. This is why the Durable Goods report usually has more of an impact on the financial markets than the Factory Orders report does. Still, a larger decline than the 0.7% that is expected could push mortgage rates slightly lower, while a smaller drop will likely lead to higher rates. But, the third report of the morning is the most important and will likely be the biggest influence on bond trading Friday.

The Institute for Supply Management (ISM) will post their manufacturing index late Friday morning. This is one of the first important economic reports released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. This points toward more manufacturing activity and could hurt bond prices, pushing mortgage rates higher. But, if we see a drop from last month’s reading of 36.3, the bond market should thrive and mortgage rates will probably fall. It is expected to show a reading of 38.0.

Overall, look for plenty of movement in the financial markets and mortgage rates this week. Wednesday will likely be the most important day of the week with the GDP being posted along with the FOMC adjournment, but we may see noticeable changes to rates Friday also. If this week’s reports reveal weaker than expected economic conditions, the bond market should rally and mortgage rates should fall significantly for the week.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now...



©Mortgage Commentary 2009

* Please note that if you have a mortgage rate and monthly payment you are comfortable with you may want to consider locking that rate. It is very difficult to predict the market in these very volatile times. Most lenders have a mortgage rate renegotiation policy. Contact me for details.