This Week’s Market Commentary

There are only two pieces of monthly economic data scheduled for release this week. Neither of them is considered to be highly important, so we don’t have much to pin our hopes on or to be concerned with this week.

There are two Treasury auctions on the calendar that may influence mortgage rates the middle part of the week and the second part of Fed Chairman Bernanke’s testimony to Congress, but no important economic data.

Nothing of concern is due tomorrow, so look for the stock markets and news from Europe- particularly Greece, to drive the markets tomorrow. Fed Chairman Bernanke will speak to the Senate Budget Committee at 10:00 AM Tuesday. I don’t expect him to say anything different than he said last week to the House Budget Committee, but the Q&A portion of his appearance could lead to something new. It is worth watching, but it will probably not lead to a noticeable change in the markets or mortgage rates.

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 one as it will give us a better indication of 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.

With little monthly and no quarterly economic reports being posted, Thursday’s weekly release of unemployment figures may end up moving the markets and mortgage rates more than it traditionally does. The Labor Department is expected to announce that 370,000 new claims for unemployment benefits were filed last week, rising slightly from the previous week’s total. The higher the number of new claims for benefits, the better the news for the bond market and mortgage pricing as it would indicate weakness in the employment sector.

The first monthly report comes early Friday morning when December’s Goods and Services Trade Balance data will be posted. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to affect mortgage rates. It is expected to show a $48.2 billion trade deficit.

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 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 74.0, down from January’s final reading of 75.0. That would indicate consumers were less optimistic about their own financial situations than last month and are less likely to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered good news for bonds and mortgage pricing.

Overall, despite being a fairly light week in terms of economic releases and relate events, it is still relatively crucial for the mortgage market. We saw the yield on the benchmark 10-year Treasury Note spike higher Friday as a result of the stronger than expected employment data. Stocks rallied as a result of that data, extending the 2012 stock rally that has pushed the Dow up over 5% and the Nasdaq up 11% year-to-date. Both indexes are at their highest levels since May 2008 and December 2000 respectively. This has me believing we are due to see a pullback in stocks fairly soon. If/when this happens, we should see funds shift back into bonds for safety, leading to lower mortgage rates. Keep in mind that this is more or less just speculation, but I am expecting to move to a less conservative approach regarding short-term mortgage rates in the near future.There are only two pieces of monthly economic data scheduled for release this week. Neither of them is considered to be highly important, so we don’t have much to pin our hopes on or to be concerned with this week.

Jobs Growth Raises Questions About GDP Forecasts, Fed

January's surprisingly strong jobs report, showing gains across a range of industries, is an encouraging sign that the employment picture may finally be picking up, and that first quarter growth forecasts may, in fact, be too low.

It also raises questions about the timing of the Federal Reserve's pledge to keep interest rates low, and whether another round of quantitative easing is even necessary.

There were 234,000 nonfarm payrolls added in January, nearly 100,000 more than expected, and the unemployment rate continued to creep down to 8.3 percent from 8.5 percent. That follows the creation of a revised 203,000 payrolls in December and 157,000 in November.

"It feels like we're now closer to growth of 200,000 a month. This would suggest that unemployment through the end of the year should continue to decline," said Mark Zandi, chief economist at Moody's Economy.com. "It's not as strong as the numbers say, but I think it's real in terms of business engagement."

The strong report Friday fueled a stock market rally, a move up in the dollar, and a jump in Treasury yields, pushing the 10-year yield back toward 2 percent. The Dow, up more than 100 points, was at a 3-1/2 year high.

The jobs report, coupled with other data, also spurred speculation that first quarter GDP growth estimates of 2 percent may prove too low.

"It's jobs growth across the board. Then when you see things like today's ISM, it's confirmation of what we saw this month," said Credit Suisse economist Jonathan Basile. "When you put the two ISM reports together, you say GDP forecasts are probably too low."

Traders also questioned whether the Fed will wait until late 2014 to raise its target rate, as it has forecast. They also wonder whether the central bank will pursue another round of quantitative easing, which would be aimed at the mortgage market.

Common First Time Homebuyer Mistakes

Many first-time homebuyers make simple and common mistakes that are easily avoidable.

They face multiple challenges anyway, such as finding the right home, the right agent, getting approved for a mortgage, and staying within their budget. By avoiding these common mistakes, the process of buying a home can be much less stressful.

1. Overlooking extra costs of homeownership

While some see themselves as ready for homeownership once they can afford a mortgage payment, it is important to remember the other fees that come along with owning a home. Property taxes, home owners association fees, maintenance, higher water and electrical bills, and property insurance are among the extra costs of owning a home, and should be calculated into your budget.

2. Not getting preapproved

It is very important to get preapproved for a loan before you go out searching for the perfect place. That way, you will be making financially sound decisions versus unrealistic emotional ones as to what you can afford.

3. Spending your entire savings on your down payment

This is one of the most common mistakes first time homebuyers make. Homebuyers who put 20 percent or more down don’t have to pay for mortgage insurance when getting a conventional mortgage, which often translates into substantial savings on the monthly payment. However, it is smarter to keep your rainy day savings intact instead.

This Week’s Market Commentary

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 seven economic releases scheduled for the week, some of which are known to be extremely influential on the financial and mortgage markets.

All seven 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 0.4% while spending is expected to rise 0.1%.

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 has two reports scheduled with the first being the 4th Quarter Employment Cost Index (ECI). It measures employer costs for employee wages and benefits, giving us an indication of the threat of wage inflation. If wages are rising, consumers have more money to spend. The report is considered moderately important and usually has more of an effect on the bond market than the stock markets. Current forecasts are showing an increase of 0.4%. A lower than expected reading would be favorable to bonds and mortgage rates Tuesday.

January’s Consumer Confidence Index (CCI) will be posted late Tuesday morning. This report is considered to be of moderate to high importance to the bond market and therefore can move mortgage rates. It is an indicator of consumer sentiment, which is important because waning confidence in their own financial situations usually means that consumers are less willing to make large purchases in the near future. Due to the significance of consumer spending, market participants are very attentive to related data. Analysts are expecting to see an increase from December’s reading, indicating a higher level of consumer confidence. A reading much smaller than the expected 67.0 would be ideal for the bond market and mortgage rates.

Wednesday’s big report comes late morning when the Institute of Supply Management (ISM) releases their manufacturing index for January. 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 54.7, which 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 also has a couple of private sector employment-related reports due to be released. They normally don’t draw much attention unless they show a significant surprise. I still 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 0.6% 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 move in rates.

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 remain unchanged at 8.5% and that approximately 170,000 new jobs were added to the economy. An increase in unemployment and a much smaller increase in payrolls would be great news for the bond market. It would probably create a bond 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.

Late Friday 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 1.6% increase in new orders, hinting at manufacturing sector strength. However, the Employment report will be the focus of the markets.

Overall, look for Wednesday or Friday to be the biggest day for mortgage rates. Friday’s Employment report is the most important piece of data, but Wednesday’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 the ISM and Employment reports, we should see rates close the week lower than last Monday’s opening 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 your mortgage professional if still floating an interest rate.

Signs of Cheer in US Bonds Faint, at Best

When former Federal Reserve vice-chairman Alan Blinder warned of the dangers of a “cacophony of voices” from interest-rate setters, he might have been thinking of this week’s Fed announcements.

The Fed forecast that it would keep rates on the floor to the end of 2014, 18 months longer than it had previously said. Investors rushed to buy Treasury bonds, driving the yield on the five-year bond to its lowest ever. Then for the first time the Fed revealed individual policymaker forecasts. More expected rates to rise earlier, or later, than in 2014. Yields jumped again.

Investors are now pricing in a rapid tightening in 2015 and 2016, of about 1.5 percentage points each year. Only three times in the past 40 years has the Fed raised faster: 1973-74, 1978-82, and 1989. All were followed by recession.

The Fed also unveiled policymakers’ views on what counts as normal “longer-run” rates, ranging from 3.75-4.5 per cent. With 30-year bond yields at 3.1 per cent, investors seem to expect the economy to remain subnormal for decades.

It is not unreasonable to think that the US will grow more slowly in future, thanks to its debt overhang and the costs of its ageing population.

But lower long-term yields also result from Operation Twist, under which the Fed sells short-dated bonds in favour of longer-dated ones. Perhaps we should be sceptical about indicators from the manipulated bond market.

Still, signs of cheer from the bond market are faint, at best. The 30-year has risen a little recently, but the steepening of the yield curve has mainly been owing to falling five-year rates, which is not a good sign.

By forcing down rates for longer and longer, the Fed is making it progressively less appealing to hold safe assets. That sharpens the distinction between the loss after inflation on safe assets, and the trade the Fed wants: borrowing to take risk. Barring eurozone implosion, risky assets have gained appeal. For a while.

Credit Bureaus Selling Your Info: How to Opt Out

Written in our customer agreements with borrowers is a promise that our company would never release personal or financial information. Unfortunately, credit bureaus do not abide by these same rules.

The credit bureaus are the culprits on trigger leads which can cause solicitation for anyone borrowing for a home loan because they sell the leads to companies. It’s not the vendors (LandSafe, IR, etc). Unfortunately, we are at the mercy of the bureaus on this deal. However, there are simple steps you can take to opt out of your information being sold by credit bureaus.

How to opt out of trigger leads

There are two ways to opt-out of trigger lead programs and ensure your information is not sold.
1. Complete and submit an online form at www.optoutprescreen.com. This method stops trigger leads for five years.

2. Complete a separate form at the same Web site (www.optoutprescreen.com) and then print, sign and mail a letter generated by that form to confirm your opt-out request. This method stops trigger leads permanently.

Both of the opt-out methods take five days to become effective, so if you don’t want your information to be sold, you need to opt-out at least five days before you make a specific inquiry.

If your information is already in the trigger lead pool, you may continue to receive telephone calls and mailings for some time after you elect to opt out.

Opting out via one of these methods is highly recommended for your privacy.

This Week's Market Commentary

This week is quite busy in terms of economic data and other events that are relevant to mortgage rates and is likely to be an active one for mortgage rates. There are five economic releases scheduled for the week in addition to the first Federal Open Market Committee (FOMC) meeting of the year that will include a press conference with Chairman Bernanke, two potentially influential Treasury auctions and the President’s State of the Union address. All but one of the five economic reports are considered to be of moderate or high importance, meaning we should see quite a bit of movement in mortgage rates this week.

There is nothing of relevance scheduled for tomorrow or during trading hours Tuesday, thus we can expect the stock markets and any potential news from overseas to drive bond trading and mortgage pricing. If the major stock indexes post strong gains, bonds will probably falter, leading to higher mortgage rates the early part of the week. President Obama will make his State of the Union address at 9:00 PM ET Tuesday evening. Topics and parts of the speech will be leaked prior, which may influence the markets during regular hours the first two days of the week. The biggest reaction to his words will come Wednesday morning.

Wednesday also has no relevant economic data scheduled for release, although it does have this year’s first FOMC meeting results. The meeting will begin Tuesday and adjourn at 12:30 PM ET Wednesday. It is expected to yield no change to short-term interest rates, but as is often the case, traders will be looking for any indication of the Fed’s next move and when they may make it. I believe that there is little chance of indicating a possible rate hike in the near future, but any hints of a change in theories or timetable by the Fed will cause afternoon volatility in the financial and mortgage markets. The meeting will adjourn early instead of the regular 2:15 PM time because it is one of four meetings this year that will be followed by a press conference hosted by Fed Chairman Bernanke.

Thursday morning brings us the release of three of the week’s economic reports. The first is December’s Durable Goods Orders at 8:30 AM ET. 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, also known as big-ticket items. The data often is quite volatile from month- to-month, but is currently expected to show an increase in orders of approximately 2.0%. A smaller than expected increase would be considered good news for bonds and mortgage rates, but a slight variance likely will have little impact on Thursday’s mortgage pricing.

Next is December’s New Home Sales report at 10:00 AM ET. It is considered to be the sister release to last week’s Existing Home Sales, giving us a small snapshot of housing sector strength. It tracks a much smaller portion of home sales than last week’s report did and is forecasted to show an increase in sales of newly constructed homes. However, this data is not important enough to heavily influence mortgage pricing unless it varies greatly from forecasts.

The third report of the day is December’s Leading Economic Indicators (LEI) at 10:00 AM ET. The LEI 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 the Conference Board to post a 0.7% increase, meaning that economic growth over the next few months will likely rise fairly quickly. Generally speaking, this would be bad news for the bond market because a strengthening economy makes long-term securities such as mortgage bonds less attractive to investors.

The remaining two economic reports will be released Friday morning, one of which is arguably the single most important reports that we see regularly. That would be the initial reading of the 4th Quarter Gross Domestic Product (GDP) early Friday morning. This data is so important because it is considered to be the best measurement of economic activity. 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 reading, which usually carries the most significance, is expected to be an increase of 3.1%. A noticeably weaker reading would be great news for the bond market, questioning the pace of the economic recovery. That would likely fuel stock selling and a rally in bonds that would push mortgage rates lower Friday morning.
However, a stronger than expected reading should fuel bond selling and higher mortgage rates.

The last report of the week is the revised reading to the University of Michigan’s Index of Consumer Sentiment. This index is a measurement of consumer confidence that is thought to indicate consumer willingness to spend. If confidence is rising, consumers are more apt to make large purchases in the near future. Since consumer spending makes up two thirds of the U.S. economy, any related data is watched closely. I don’t see this data having much of an impact on the markets or mortgage rates due to the importance of the GDP reading.

And if we didn’t have enough to watch already, there are two relatively important Treasury auctions for the markets to digest. The Fed will auction 5-year and 7-year Treasury Notes Wednesday and Thursday, respectively. If they are met with a strong demand from investors, the broader bond market may rally during afternoon hours those days. If the sales draw a lackluster interest, they could lead to bond selling and higher mortgage rates during afternoon hours those days.

Overall, look for Wednesday 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 Wednesday morning and again in the afternoon following the Fed’s time in the spotlight. I would be quite surprised if we did not see a very active week in rates, including intra-day revisions on multiple days. I strongly recommend that constant contact is maintained with your mortgage professional this week if still floating an interest rate.