Tuesday, November 26, 2013 - Article by: James Brooks - Polaris Home Funding Corp -
By James Brooks
The major stock indexes are showing minor gains with the Dow up 26 points and the Nasdaq up 7 points. The bond market is currently up 10/32, which will likely improve this morning's mortgage rates by approximately .125 of a discount point.
The first round of today's economic reports was scratched for the most part due to complications in collecting the necessary data. September and October's Housing starts were expected to be released early this morning, but have been postponed. However, a secondary reading in the reports that tracks permits issued for new starts was released for both months. Those readings help us measure future starts of homes since new permits are needed before a housing project can break ground. Today's release showed sizable increases in both months, hinting that future housing starts may be strong. That points towards a strengthening housing sector makes the data negative for the bond market and mortgage rates.
However, the second report of the morning was clearly favorable. The Conference Board announced late this morning that their Consumer Confidence Index (CCI) for November fell to 70.4. This was lower than the 72.4 that was expected and was the lowest reading since April of this year. It was also a decline from October's revised reading, meaning surveyed consumers were less optimistic about their own financial and employment situations than many had thought. Since that likely translates into weaker levels of consumer spending, we should consider the data good news for bonds and mortgage pricing.
Today also has the first two Treasury auctions that have the potential to influence this week's mortgage rates. There will be an auction of 5-year Treasury Notes today and 7-year Notes tomorrow. 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 each day, so look for any reaction to come during afternoon hours.
Tomorrow morning has the week's three remaining economic reports in addition to the 7-year Note auction. October's Durable Goods Orders is the first and will be posted at 8:30 AM ET. This data helps us measure manufacturing strength by tracking orders for big-ticket items or items that are expected to last three or more years, such as airplanes, appliances and electronics. This data is known to be quite volatile from month-to-month, so sizable swings from the previous month are fairly normal. It is expected to show a 2.2% decline in new orders. A larger than expected drop would be considered good news for the bond market and mortgage rates as it would indicate manufacturing sector weakness. However, we need to see a sizable variance for the markets to have a noticeable reaction due to the expected volatility in the data.
The revised November reading to the University of Michigan's Index of Consumer Sentiment will be posted just before 10:00 AM ET tomorrow. As with today's CCI, it will give us a measurement of consumer willingness to spend. Analysts are expecting to see an upward revision to the preliminary reading of 72.0. Unless we see a significant variance from the forecasted 73.0, I don't think this data will cause much movement in mortgage rates since the Durable Goods Orders data is the week's most important report.
The final report of the week will come from the Conference Board at 10:00 AM ET tomorrow when they release their Leading Economic Indicators (LEI) for October. This is a moderately important report that attempts to predict economic activity over the next three to six months. It is expected to show a 0.1% decline, meaning economic activity will likely remain flat over the next couple of months. Generally speaking, this would be good news for bonds. However, since this data is considered only moderately important, its results need to miss forecasts by a wide margin for it to affect mortgage rates.
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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