Mortgage Market Update
This week brings us the release of only three pieces of moderately important economic data for the bond market to digest along with the minutes from the most recent FOMC meeting. Making things a little more interesting is the fact that all of the week's events take place over only three days. The financial markets will be closed tomorrow in observance of the President's Day holiday, so don't expect to see new mortgage pricing until Tuesday morning. Due to the holiday, this report will not be updated tomorrow.
The first piece of data is January's Existing Home Sales report by the National Association of Realtors late Wednesday morning. This data tracks home resales throughout the country, giving us a measurement of housing sector strength. It is expected to show a rise in sales of existing homes, meaning the housing sector strengthened last month. Ideally, the bond market would like to see a sizable decline in sales because weak housing makes broader economic growth more difficult. Since long-term securities such as mortgage bonds tend to thrive during weaker economic conditions, weak housing numbers would be good news for mortgage rates.
Wednesday also brings us the release of the minutes from the most recent FOMC meeting. Traders will be looking for any indication of the Fed's next move regarding monetary policy, particularly when the next rate increase may come. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may lead to afternoon volatility Wednesday, or they may be a non-factor. However, they do carry the potential to influence mortgage rates so they should be watched.
January's New Home Sales report will be posted at 10:00 AM ET Friday morning. This is the least important report of the week, and is the sister report to the Existing Home Sales data. It also measures housing sector strength and mortgage credit demand, but usually does not have a significant impact on bond trading or mortgage rates unless it shows a significant surprise. Friday's report is also expected to show an increase in sales of newly constructed homes, hinting at strength in the new home portion of the housing sector too. The smaller the number of sales, the better the news it is for bonds and mortgage rates.
The University of Michigan's revision to their Index of Consumer Sentiment for February will close out the week's calendar late Friday morning. Current forecasts show this index rising slightly from its preliminary estimate of 95.7. This index is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but is not considered to be a major market mover.
In addition to this week's economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes Wednesday and 7-year Notes on Thursday. 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 to mortgage rates. However, sales with higher levels of investor demand usually make bonds more attractive to investors and brings additional funds into the bond market. The buying of bonds that follows translates into lower mortgage rates.
Overall, Wednesday is the best candidate for most active day in mortgage rates but Friday is worth consideration also. The calmest day will probably be Thursday since it is common to see an active day immediately following a long holiday weekend. Generally speaking, there is nothing of major concern scheduled this week. Therefore, we could see a pretty quiet week in mortgage rates unless something unexpected happens.