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If you are considering locking in an interest rate for a New York mortgage or a Florida mortgage, read this post.
This week brings us the release of five economic reports that are relevant to mortgage rates, in addition to a couple of Treasury auctions that have the potential to be influential on the bond market and mortgage pricing. Corporate earnings season also kicks off this week, which could be instrumental in driving stock prices lower or recover last week’s losses. I still believe stocks are overpriced and are due to pullback sooner or later. This week could be the sooner if some of those key earnings miss analysts’ predictions.
There is no relevant economic news scheduled for release today or Tuesday. Today is likely going to be an active day though despite the lack of factual economic data. This is due to the fact that the stock markets were closed Friday in observance of the Good Friday holiday, so they have not been able to react to March’s Employment Report that was posted early Friday morning. The bond market rallied into its early close, pushing mortgage rates noticeably lower. Theoretically, stocks should be in negative ground tomorrow because the number of new jobs added to the economy last month was half of what we saw in February and well below forecasts. That throws into question whether the employment sector can continue to strengthen at the pace we saw the past couple of months, which has helped buoy the major stock indexes.
Also worth noting is the fact that the Dow closed Thursday at 13,060, just a moderate day of selling away from falling below 13,000. That could very well come today if the major stock indexes react as they are expected to when they open for the first time since the Employment report was posted. Generally speaking, bond weakness is good news for bonds and mortgage rates because investors often shift funds into bonds as a safe haven from the selling. Data that is good for the economy often boosts stocks and hurts bonds, while weaker economic conditions have an opposite effect on both. Therefore, stock weakness tomorrow could mean another day of strength in bonds and improvements to mortgage rates.
The first report of the week comes Wednesday afternoon when the Federal Reserve will post its Fed Beige Book report at 2:00 PM ET. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by Federal Reserve region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Unexpected signs of strong economic growth or rising inflation would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be considered favorable for bonds and mortgage pricing.
The two Treasury auctions are scheduled for Wednesday and Thursday. There is a 10 year Treasury Note sale Wednesday and a 30 year Bond sale Thursday. We could see some weakness in bonds ahead of the sales as participating firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing Wednesday and/or Thursday afternoon.
Thursday begins the highly important economic data when the Labor Department will post March's Producer Price Index (PPI) at 8:30 AM ET. It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch, the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond's future fixed interest payments, leading to higher mortgage rates. A slight increase, or better yet a decline in prices, would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in the overall reading and a 0.2% rise in the core data.
February’s Goods and service Trade Balance will be released early Thursday morning also. It will give us the size of the U.S. trade deficit, but is not considered to be of high importance to the markets or mortgage rates. This report usually has little impact on mortgage rates unless it shows a significant variance from forecasts and there is no other data to drive trading that day. It is expected to show a trade deficit of $52.0 billion, but since the PPI is also being released Thursday morning, regardless of its results, I doubt this data will have an impact on mortgage rates.
The remaining economic reports will both be posted Friday morning. This first will be March's Consumer Price Index (CPI) at 8:30 AM ET. This index is one of the most important pieces of data we see each month. It is similar to Thursday's PPI but measures inflationary pressures at the consumer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors, leading to bond selling and higher mortgage rates. As with the PPI, there are two readings in the index that traders watch. Analysts are expecting to see a 0.3% increase in the overall readings and a 0.2% rise in the core reading. If we see larger increases, we could get higher mortgage rates Friday.
The final release of the week is the University of Michigan's Index of Consumer Sentiment at 9:55 AM ET Friday. Their consumer sentiment index will give us an indication of consumer confidence, which hints at consumers' willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial situations, they probably will delay making that large purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March's 76.2 reading. Current forecasts are calling for a reading of approximately 71.1.
Overall, look for the most movement in rates the latter part of the week, with exception to maybe tomorrow’s early pricing. The PPI and CPI reports are the biggest names on the agenda. Either of them can cause significant movement in the markets and mortgage rates, so either Thursday or Friday will probably be the most active day of the week. Look for the stock markets to influence bond trading and mortgage rates the first part of the week, but we can expect to see the most movement in rates the latter part. I am expecting it to be an active week for the mortgage market, so please maintain contact with your mortgage professional if still floating an interest rate.
If I were considering financing/refinancing a home, I would.... Float 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... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Empire Home Mortgage Inc. is a registered Mortgage Broker with the New York and Florida State Banking Departments and our loans are arranged through third party providers.