Mortgage bond prices started the week in negative territory. Those losses were short-lived as trading was thin and choppy with continued large market swings. There were few data releases. The Treasury auctions showed relatively strong foreign demand for US debt instruments, which helped carry over to the mortgage bond market Wednesday afternoon. Weekly jobless claims came in better than expected which was not good for bonds early Thursday morning. Fortunately mortgage bonds ended the week positive by about 1/2 of a discount point. The employment report will be the most important release this week. This data will set the tone for trading this month. We ended last year with considerable volatility and this is expected to continue for some time.
Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
Analysis
Construction Spending
Monday, Jan. 3, 2011
Up 0.2%
Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
ISM Index
57
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Factory Orders
Tuesday, Jan. 4, 2011
Down 0.5%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Fed Minutes
None
Important. Details of the last Fed meeting will be thoroughly analyzed.
ADP Employment
Wednesday, Jan. 5, 2011
75k
Important. An indication of employment. Weakness may bring lower rates.
Weekly Jobless Claims
Thursday, Jan. 6, 2011
400k
Important. An indication of employment. Higher claims may result in lower rates.
Employment
Friday, Jan. 7, 2011
9.8%, Payrolls +110k
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
Consumer Credit
Down $6.5b
Low importance. A significantly higher than expected figure may lead to lower mortgage interest rates.
The Year Ahead
The future of the economy, recovery or additional weakness, will continue to be debated. There is no certainty in predictions. Data can be used to support both sides of the debate. What we can be certain of is the fact that until the economy gains some stability, mortgage interest rates are likely to remain volatile. Historically, mortgage interest rates seem to improve slowly. In contrast, when rates increase, it is often fast and furious. One negative day often erases a week of positive improvements. Of course even that maxim was tested the last few months of last year as market swings of 1/2 a discount point both up and down were often seen in very short spans of time. It is possible for mortgage interest rates to push lower considering the Fed still wants to keep rates relatively low. However, we are in unprecedented times and we have seen rates jump off the lows from last year. The Fed isn't the only player in the financial markets and there are many others buying and selling securities. Remember that the Fed does not directly dictate that mortgage interest rates will be at a certain rate. Rates are determined by the supply and demand for mortgage-backed securities. Despite spikes near the end of 2010, the Fed kept rates low. The big unknown is how things will play out this year. Now is a great time to take advantage of mortgage interest rates at these still historically favorable levels.
Mortgage bond prices ended the week higher pushing mortgage interest rates lower. We had a week of very mixed data. Industrial production data was weaker than expected which was generally bond friendly to start the week. Stronger than expected housing starts data Tuesday was not what the bond market was looking for but the reaction was muted. Significant stock weakness Wednesday helped mortgage bonds finish the day in positive territory. This was followed by lower than expected weekly jobless claims Thursday. Fortunately mortgage bonds were positive overall for the week. Rates finished the week generally about 1/4 of a discount point lower. The Treasury auctions will be carefully watched this week. If foreign demand remains solid rates should hold steady.
Existing Home Sales
Monday, Oct. 25, 2010
4.23m
Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
Consumer Confidence
Tuesday, Oct. 26, 2010
50
Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
2-year Treasury Note Auction
Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Durable Goods Orders
Wednesday, Oct. 27, 2010
Up 0.8%
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
New Home Sales
300k
Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
5-year Treasury Note Auction
Q3 Advanced GDP
Thursday, Oct. 28, 2010
Up 2.4%
Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
Q3 Employment Cost Index
Friday, Oct. 29, 2010
Up 0.5%
Very important. A measure of wage inflation. Weakness may lead to lower rates.
Employment Cost Index
The employment cost index is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. Though ECI figures are usually weeks old, the data remains the best indicator of employment price pressures considering it factors employees' total compensation. If wage pressures become evident, higher expectations of inflation also tend to arise. However, increasing compensation does not necessarily lead to increased inflationary pressures. Oftentimes, increased productivity enables employers to increase compensation without increasing the costs of their goods or services. Be cautious heading into this release.
Mortgage bond prices fell last week pushing interest rates considerably higher. The primary cause for the increases was stronger than expected data. Consumer confidence and weekly jobless claims beat estimates solidly and shocked the bond market lower. Overall the Treasury auctions and stronger stocks also pressured mortgage bond prices. Rates rose by about 1/2 of a discount point for the week. The retail sales data Tuesday will set the tone for trading this week. If any of the data comes in positive mortgage interest rates may continue the recent climb into higher territory. Expect more volatility, as stocks and bonds are likely to continue their back and forth trading pattern.
Retail Sales
Tuesday, Sept. 14, 2010
Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
Business Inventories
Up 0.4%
Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.
Industrial Production
Wednesday, Sept. 15, 2010
Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization
75.0
Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
Producer Price Index
Thursday, Sept. 16, 2010
Up 0.2%, Core up 0.2%
Important. An indication of inflationary pressures at the producer level. Decreases may lead to lower rates.
465k
Important. An indication of employment. An increase in jobless claims may bring lower rates.
Philadelphia Fed Survey
-4.2
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
Consumer Price Index
Friday, Sept. 17, 2010
Up 0.1%, Core up 0.1%
Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates.
The report on business inventories basically gives a broader look at the durable goods, factory orders, and retail sales reports. Not only is this report an important part of the investment component of the GDP, but it also provides additional evidence about the economy in the upcoming months. Changes in business inventories slow as the economy approaches a peak, and rise as the economy approaches the trough of a recession. Therefore the change in business inventories is a leading indicator of GDP. The data for this report, which are published by the Department of Commerce's Census Bureau, comes from a monthly survey of inventories, orders, and manufacturers' shipments, in addition to the merchant wholesalers and retail trade surveys. Not a great amount of attention is typically paid to this report due to the fact that much of the data is already available and surprises are rare. However, in this environment every piece of data has the potential to cause some volatility.
Washington, May 04, 2010
Pending home sales increased again in March, affirming that a surge of home sales is unfolding for the spring home buying season, according to the National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in March, rose 5.3 percent to 102.9 from 97.7 in February, and is 21.1 percent above March 2009 when it was 85.0; this follows an 8.3 percent increase in February. The data reflects contracts and not closings, which usually occur with a lag time of one or two months.
Lawrence Yun, NAR chief economist, said favorable affordability conditions have been working with the tax credit. “Clearly the home buyer tax credit has helped stabilize the market. In the months immediately following the expiration of the tax credit, we expect measurably lower sales,” he said. “Later in the second half of the year, and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace, and from a return of buyer demand as they see home values stabilizing.”
The PHSI in the Northeast declined 3.3 percent to 75.1 in March but remains 27.2 percent higher than March 2009. In the Midwest the index increased 1.2 percent to 98.9 and is 18.5 percent above a year ago. Pending home sales in the South jumped 12.7 percent to an index of 121.2, which is 28.3 percent higher than March 2009. In the West the index rose 1.9 percent to 99.9 and is 8.8 percent above a year ago.
“Another encouraging sign is the improvement in the availability for jumbo and second-home mortgages,” Yun said. “As bank balance sheets strengthen, it is just a matter of time before lending of non-government-backed mortgages steadily opens up.”
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.
First quarter metropolitan area home prices and state home sales will be released May 11. Existing-home sales for April will be reported May 24 and the next Pending Home Sales Index will be on June 2; release times are 10 a.m. EDT.
Information about NAR is available at www.realtor.org. This and other news releases are posted in the News Media section. Statistical data, tables and surveys also may be found by clicking on Research.
Market Comment - Week of April 26th, 2010
Mortgage bond prices fell last week pushing mortgage interest rates higher. The first portion of the week had very little data. Leading economic indictors came in stronger than expected which really didn't help us. Strong stocks pressured mortgage bonds a bit. Producer prices rose more than expected but the core rate was tame. New home sales shocked the market with a 26.9% increase. This was the largest increase in 47 years and not bond friendly. Rates rose by about 3/8 of a discount point for the week. The Fed meeting Wednesday will be the most important event this week. The Treasury auctions will also likely overshadow a lot of the other releases as traders digest record debt that continues to hit the market. Friday morning may be volatile as the employment cost index and gross domestic product data are very important releases.
Tuesday, April 27, 2010
54.0
Important. $44 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Wednesday, April 28, 2010
Important. $42 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed Meeting Adjourns
No change
Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
Thursday, April 29, 2010
455k
Moderately important. An indication of employment. A larger figure may lead to lower rates.
7-year Treasury Note Auction
Important. $32 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Q1 Advance GDP
Friday, April 30, 2010
3.5%
Q1 Employment Cost Index
The Conference Board releases the Consumer Confidence Index on the last Tuesday of every month. The report details the levels of confidence individual households have in the performance of the economy. The data is derived from a survey of 5,000 households nationwide. The survey polls consumer opinions on current business conditions, their jobs, their incomes, and their future spending plans. The consumer confidence index is significant in that it provides a precursor into consumers' willingness to spend in the months ahead. However, many analysts point out that willingness to spend does not always convert to actual expenditures. This week's release will be eagerly anticipated. Look for any variation from estimates to cause mortgage interest rate volatility. Signs of eroding consumer confidence could lead to improvements in mortgage interest rates. However, stronger than expected figures could spike rates higher.