Mortgage rates improved last week as the price of mortgaged backed securities rose. The price of a rate for thirty-year fixed rate mortgages improved by about ½ of a discount point. However, the long term outlook for mortgage rates continue to be bearish. The near term outlook has shifted from solid bearish reads to a more neutral pattern. This week both existing and new home sales in Jan are expected to have declined from Dec but whatever slippage we see will likely be seen as weather related distortions. US financial markets are closed Monday for President's Day. The week has two housing reports, existing and new home sales, Jan durable goods orders and the weekly jobless claims as the main data points. Treasury will auction $99B of notes; Tuesday $35B of 2 yrs, Wednesday $35B of 5 yrs and Thursday $29B of yr notes totaling $99B the same as the past four months.
. Tuesday morning brings us the first of this week's data with the release of February's Consumer Confidence Index (CCI) during late morning trading. This Conference Board index measures consumer confidence in their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling good about their own financial situations, they are more apt to make large purchases in the near future. Since consumer spending makes up two-thirds of the economy, related data is considered important in terms of gauging economic activity. It is expected to show an increase in confidence from 60.6 in January to 65.0 this month. A lower reading would be considered good news for bonds and mortgage rates. The National Association of Realtors will post January’s Existing Home Sales report late Wednesday morning. It tracks home re-sales, giving a measurement of housing sector strength. It is expected to show a small decline in sales of existing homes, meaning the housing sector remained fairly flat during the month. Ideally, the bond market would like to see a sizable decline in sales because weak housing is one of the hurdles that the economy must overcome to recover from the recession. The longer it takes for the housing market to recover, the longer it will take the economy to do the same. Thursday’s first of two releases is January's Durable Goods Orders data will provide a measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. A smaller increase than the 3.0% that is expected would be good news for the bond market and mortgage rates. This data is quite volatile from month-to-month, so large swings are fairly normal. The economy based on recent data continues to improve, all but employment and housing. Inflation concerns are slowly mounting as global inflation ticks higher. The outlook for inflation remains on the minds of investors, who are not likely to sit and wait for confirmation, putting pressure on long term rates. Both the improving economy and inflation concerns however are being overlooked to some extent with increasing violence and protests spreading across the Mideast. After Tunisia and Egypt over through their rulers people in most of the region are taking to the streets. Safety moves into US treasuries are countering inflation worries and strengthening economic data points. January's New Home Sales report will be posted late Thursday morning. This is one of the least important reports of the week, and is the sister report to Wednesday's Existing Home Sales release. They measure housing sector strength and mortgage credit demand, but usually do not have a significant impact on bond trading or mortgage rates unless they show significant surprises. This report is also expected to show a decline in sales. The first of two revisions to the 4th Quarter GDP reading is scheduled for release Friday morning. Analysts' forecasts currently call for an annual rate of growth of 3.3%, indicating that the economy was slightly stronger in the last quarter of the year than initially thought. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market, while a sizable downward revision would be good news and could lead to improvements in mortgage pricing The last piece of data scheduled for release this week is the University of Michigan's revision to their Index of Consumer Sentiment for February. Current forecasts show this index not changing much from its preliminary estimate of 75.1. This index is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend. Look for continued volatility in bond prices and mortgage rates this week, especially Tuesday, Thursday and Friday. This would be a very good week to maintain contact with your mortgage professional. To find out about applying for a mortgage call Paul Cantor (804) 719-1515 or
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