Monday, November 25, 2013 - Article by: James Brooks - Polaris Home Funding Corp -
The bond market is currently up 5/32, which should improve this morning's mortgage rates by approximately .125 of a discount point if comparing to Friday's morning pricing.
There is nothing scheduled today that is of relevance to mortgage rates. Look for the stock markets to drive bond trading and mortgage rate movement. The weekend deal struck with Iran initially looked like it would play a role in this morning's trading, but the early stock gains and bond weakness have quickly evaporated. If the major stock indexes continue to move lower today, we could see bonds strengthen and lenders slightly improve mortgage rates. On the other hand, if pre-market and initial gains return to stocks later today, we could see a small intra-day upward revision to mortgage pricing.
This holiday-shortened week brings us the release of six relevant economic reports for the markets to digest in addition to a couple of Treasury auctions that have the potential to affect rates. The week's mortgage-related events start early tomorrow morning when September and October's Housing Starts reports are posted. September's data, originally set for release last month, was delayed due to the government shutdown, so we are getting both months tomorrow. This data gives us an indication of housing sector strength, but usually does not have a noticeable impact on mortgage rates. I don't expect these to be any different unless they vary greatly from analysts' forecasts. Both months are expected to show increases in starts of new homes, meaning the new home portion of the housing sector strengthened during September and October. Good news for the bond and mortgage markets would be sizable declines in the data, particularly in October.
November's Consumer Confidence Index (CCI) will be released late tomorrow morning by the Conference Board, who is a New York-based business research group and not a governmental agency. The CCI gives us a measurement of consumer willingness to spend. If a consumer's confidence in their own financial and employment situation is strengthening, analysts believe that they are more apt to make larger purchases, fueling economic growth. This is important because consumer spending makes up over two-thirds of the U.S. economy and makes long-term securities such as mortgage-related bonds less attractive to investors. Analysts are expecting to see a small increase in confidence from last month's level, meaning surveyed consumers were a little more optimistic about their own financial situations this month than they were last month. A weaker reading than the 72.4 that is expected would be good news for mortgage rates, while a stronger reading could push mortgage rates higher Tuesday.
Wednesday has the remaining three economic reports that we need to be concerned with. October's Durable Goods Orders from the Commerce Department, the revised November reading to the University of Michigan's Index of Consumer Sentiment and the Conference Board's Leading Economic Indicators (LEI) for October are all set for release Wednesday.
In addition to those economic releases, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates tomorrow and Wednesday. There will be an auction of 5-year Treasury Notes tomorrow and 7-year Notes on Wednesday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions in mortgage rates. However, strong investor demand usually make bonds more attractive to investors and brings more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during afternoon hours.
Overall, I am expecting Wednesday to be the busiest day for the bond market and mortgage rates with three of the week's reports scheduled, including the most important one (Durable Goods), along with the 7-year Note auction. Friday will likely be the calmest day of the week as many traders will be home for the long weekend rather than in the office working. I am still closely watching the benchmark 10-year Treasury Note yield for mortgage rate direction. I think we need it to move below 2.70% before we can expect to see a noticeable downward move in mortgage pricing. It currently stands at 2.73%. If the yield does not break below that level, I believe we will see it move higher, leading to higher mortgage rates. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.
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... Lock if my closing was taking place over 60 days from now.
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