This Week’s Market Commentary

This holiday-shortened week brings us the release of five important economic reports for the markets to digest. Two of the five are considered to be of very high importance to the bond market and mortgage rates. The remaining reports are considered to be of moderate importance to the markets.

 

The financial and mortgage markets will be closed today in observance of the Memorial Day holiday and will reopen Tuesday morning.

The Conference Board will start the week’s more important releases by posting their Consumer Confidence Index (CCI) at 10:00 AM Tuesday. This is data measures consumer willingness to spend. If the index rises, it indicates that consumers feel better about their personal financial situations and are more apt to make large purchases. If confidence is sliding, analysts think consumer spending may slow in the near future. The latter is good news for the bond market because consumer spending makes up two-thirds of the U.S. economy. A decline in the index should boost bond prices and push mortgage rates lower Tuesday morning. It is expected to show a reading of 66.3, up from April’s 65.4 reading.

The Institute for Supply Management’s (ISM) manufacturing index will be posted late Wednesday morning. This highly important index measures manufacturer sentiment. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. Analysts are expecting to see a 57.6 reading in this month’s release, meaning that sentiment fell during May. A smaller reading will be good news for the bond market and mortgage shoppers while an unexpected increase could contribute to higher mortgage rates Wednesday.

The revised 1st Quarter Productivity and Costs data is the first of two reports that will be released Thursday morning. This data measures employee output and employer costs for wages and benefits. It is considered to be a measurement of wage inflation. It is believed that the economy can grow with low inflationary pressures when productivity is high. Last month’s preliminary reading revealed a 1.6% increase, but I don’t think this piece of data will have much of an impact on the bond market or mortgage pricing unless it varies greatly from that reading.

The second release of the day will come from the Commerce Department, who will post April’s Factory Orders data during late morning trading. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn’t expected to cause much change in rates this month. Current forecasts are calling for a decline in new orders of 1.0%.

Friday’s sole report is arguably the single most important report that we see each month. The Labor Department will post May’s Employment data early Friday morning. This report gives us key employment readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate remain at 9.0% this month with approximately 185,000 jobs added to the economy during the month. A higher than expected unemployment rate and a smaller number than 185,000 in new payrolls would be great news for the bond market. It would probably create a sizable rally in bonds, leading to lower mortgage rates Friday. However, stronger than expected numbers may lead to a spike in rates Friday morning.

Overall, Wednesday or Friday is likely to be the most important day of the week as they bring us the two most important reports on the agenda. If they give us weaker than expected results, we could close the week with lower mortgage rates than Tuesday’s opening levels. However, if we see stronger than expected readings in those two releases, I expect mortgage rates to move higher on the week.

But that is very much dependent on seeing a relatively calm week in stocks. As we have seen the past two weeks, stock market volatility can heavily influence bond trading and mortgage rates and significantly minimize the impact that these economic reports normally have on rates. Accordingly, it would be wise to maintain contact with your mortgage professional if still floating an interest rate.

NAR Shadow Inventory

It’s still a great time to buy real estate! With real estate inventories at an all-time high, and rates still at attractive levels, the window is wide open for home buyers. But buyers beware, the window doesn’t stay open indefinitely.

 

Take a look at the blog by Economists Outlook, which features a state-by-state estimate of so-called “Shadow Inventory” – real estate that will be have to be sold that we don’t know about yet. It’s made up of homes that soon will be on the market, but not for the usual reasons.

Shadow inventory includes homes that are usually several months in arrears on their mortgage and about to hit the foreclosure circuit; homes that are 90-plus days delinquent and currently languishing in foreclosure; or bank-owned (REOs) that have not yet been put on the market. But come on the market they will, one way or the other, and at greatly discounted prices – distressed or short sales.

This Week’s Market Commentary

This week brings us the release of five important economic reports in addition to two Treasury auctions that may influence rates. Only two of the five reports are considered to be of fairly high importance to the bond market and mortgage pricing. The remaining reports are considered to be of moderate or low importance and will likely not heavily influence mortgage rates.

 

April’s New Home Sales data will be released late Tuesday morning. This report gives us a measurement of housing sector strength and future mortgage credit demand. However, it is actually the least important release of the week and probably will not have much of an impact on mortgage pricing because it tracks only approximately 15% of all home sales. It is expected to show little change in sales from March’s level, meaning the new home portion of the housing sector was flat last month.

Wednesday has one of the week’s more important reports scheduled with April’s Durable Goods Orders being posted. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket products.

It is currently expected to show a decline in new orders of approximately 2.0%, indicating manufacturing sector weakness. That would be good news for the bond market and mortgage rates, but this data is known to be quite volatile. Therefore, a small variance from forecasts would likely have little impact on mortgage rates Wednesday.

The first of two revisions to the 1st quarter Gross Domestic Product (GDP) will be released at 8:30 AM Thursday. The second revision to this report comes next month but isn’t expected to carry much importance. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best indicator of economic growth. Last month’s preliminary reading revealed a 1.8% increase in the annual rate of growth. Analysts expect a slight upward revision to this reading with the consensus being a 2.0% rate of growth. If the upward revision is much stronger than expected, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter.

April’s Personal Income and Outlays data is the first of two reports due Friday. It will be posted at 8:30 AM and gives us an indication of consumer ability to spend and current spending habits. An increase in income means that consumers have more money available to spend. Since consumer spending makes up two-thirds of the U.S. economy, this data can cause movement in the financial markets and mortgage rates. Current forecasts are showing a 0.4% increase in income and a 0.5% rise in spending. Weaker readings would be considered good news for bonds and mortgage rates.

The second report of the day and the last relevant data of the week will come from the University of Michigan who will update their Index of Consumer Sentiment for May. It is forecasted to show a small increase from this month’s preliminary reading of 72.4. A reading above 72.6 would be considered negative for bonds and mortgage pricing.

Overall, I think we have a fairly busy week ahead of us. The big report of the week is Wednesday’s Durable Goods Orders. If Thursday’s GDP revision varies greatly from forecasts, it can also lead to sizable changes in rates. There are also a couple of Treasury auctions that are worth noting. The 5-year Note sale is Wednesday and the 7-year Note auction will be held Thursday. Both may influence bond trading and possibly mortgage rates if they are met with an exceptional demand or if there is lackluster interest from investors.

The bond market will close early Friday afternoon ahead of next Monday’s Memorial Day holiday. With all this, there is a pretty good possibility of seeing mortgage rates change several times this week- especially if there is more volatility in the stock markets. Accordingly, please proceed extremely cautiously if still floating an interest rate.

7 Things You Should NOT Do When Applying for a Home Loan

This is a list of things to steer clear of when you are seeking to obtain financing for a home. If you do any of these things, please contact your loan officer immediately.

 

Even if  you have been pre-qualified, we can help you re-qualify.

1. Don’t buy or lease an auto!

Lenders look carefully at your debt-to-income ratio. A large payment such as a car lease or purchase can greatly impact those ratios and prevent you from qualifying for a home loan.

2. Don’t move assets from one bank account to another!

These transfers show up as new deposits and complicate the application process, as you must then disclose and document the source of funds for each new account. The lender can verify each account as it currently exists. You can consolidate your accounts later if you need to.

3. Don’t change jobs!

A new job may involve a probation period, which must be satisfied before income from the new job can be considered for qualifying purposes.

4. Don’t buy new furniture or major appliances for your “new home”!

If the new purchases increase the amount of debt you are responsible for on a monthly basis, there is the possibility this may disqualify you from getting the loan, or cut down on the available funds you need to meet the closing costs.

5. Don’t run a credit report on yourself!

This will show as an inquiry on your lender’s credit report. Inquiries must be explained in writing.

6. Don’t attempt to consolidate bills before speaking with your lender!

The loan officer can advise you if this needs to be done.

7. Don’t pack or ship information needed for the loan application!

Important paperwork such as W-2 forms, divorce decrees, and tax returns should not be sent with your household goods. Duplicate copies take weeks to obtain, and could stall the closing date on your transaction.

Tagged as: credit score, financing, loans, saving money, transactions

This Week’s Market Commentary

There are five pieces of relevant economic data scheduled for release this week that may affect mortgage rates, in addition to two important Treasury auctions.

The four most important four reports will be posted over two days, meaning the markets will have to rely on factors other than economic news for direction several days. There is no relevant data due today or Tuesday, so expect the stock markets to help drive bond trading and mortgage rates those days.

March’s Goods and Services Trade Balance report will be released early Wednesday morning. This report gives us the size of the U.S. trade deficit but likely will not have much of an impact on the bond market or mortgage pricing. It is expected to show a $47.8 billion trade deficit, but it is the least important of this week’s data and likely will have little influence on Wednesday’s mortgage rates.

The Treasury will hold a 10-year Note sale Wednesday and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sale, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons.

The first important piece of data this week is April’s Retail Sales, which will be released at 8:30 AM ET. It is an extremely important report for the financial markets since it measures consumer spending. Consumer spending makes up two-thirds of the U.S. economy, so this data can have a pretty significant impact on the markets. Current forecasts are calling for a 0.6% increase in sales from March to April.

A weaker than expected level of sales should push bond prices higher and mortgage rates lower Thursday morning as it would signal that economic activity may not be as strong as thought. However, a larger increase could fuel fears of economic growth that would lead to bond selling and higher mortgage rates.

April’s Producer Price Index (PPI) will also be released early Thursday morning. It helps us measure inflationary pressures at the producer level of the economy. If this report reveals weaker than expected readings, indicating inflation is not a concern at the producer level, we should see the bond and stock markets rally. The overall index is expected to show an increase of 0.5%, while the core data that excludes more volatile food and energy prices has been forecasted to rise 0.2%. No change or a decline in the core data would be ideal for mortgage shoppers because inflation is the number one nemesis for long-term securities such as mortgage-related bonds.

Friday has the remaining two reports. The first is April’s Consumer Price Index (CPI) at 8:30 AM ET. It is similar to Thursday’s PPI report, but measures inflationary pressures at the more important consumer level of the economy. These results will be watched closely and can lead to significant volatility in the bond market and mortgage pricing if they show any surprises. Current forecasts are calling for a 0.4% increase in the overall index and a 0.1% rise in the core data reading. As with the PPI, the core data is the more important of the two readings.

The last report of the week is May’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident of their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 69.8, which would be no change from last month’s final reading.

If it shows a large decline in consumer confidence, bond prices could rise and mortgage rates would move slightly lower, assuming the CPI does not give us a significant surprise. The CPI is much more important to the markets than the sentiment index is, so look for it to be the biggest influence on Friday’s mortgage pricing.

Overall, it likely will be another active week for mortgage rates. Besides the week’s important economic news, look for the stock markets to be a major influence on trading. The most important day of the week is Thursday with the Retail Sales and PPI reports on the agenda, but Friday’s CPI is extremely important to the bond market. It appears we will likely see the most movement in mortgage rates the latter part of the week unless the stock markets post sizable gains or losses the first part. With some very important data being posted this week, it would be prudent to be attentive to the markets if still floating an interest rate.

For the most recent daily market commentary, click here.

This Week’s Market Commentary

Monday’s bond market has opened flat despite stronger than expected economic data and news of Osama Bin Laden’s death. The stock markets have also had little reaction to the data and news with the Dow up 24 points but the Nasdaq down 1 point. The bond market is nearly unchanged from Friday’s close, which should keep this morning’s mortgage rates at Friday’s levels.

The Institute for Supply Management (ISM) announced an April reading of 60.4 in their manufacturing index late this morning. This was decline from March’s reading, meaning fewer surveyed manufacturers felt business improved last month they did in March. That is good news for the bond market and mortgage rates, but the reading was a little higher than analysts had forecasted, basically neutralizing the results. Accordingly, the data has had little influence on this morning’s mortgage pricing.

Tomorrow’s only relevant economic date is March's Factory Orders report. This 10:00AM ET report will give us another measure of 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 noticeably smaller increase than the 1.8% that is expected could push mortgage rates slightly lower. But, a much larger increase in new orders could lead to slightly higher mortgage pricing tomorrow.

Overall, I believe Friday will be the most important day of the week with the employment data being posted, especially since the Bin Laden news had not fueled much market movement. The Employment report easily erase the week's accumulated gains or losses in mortgage rates if it shows any surprises. The middle part of the week will likely be the calmest, but I still suggest proceeding cautiously if still floating an interest rate. This would be a good week to maintain contact with your mortgage professional if you have not locked a rate yet.

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