• Jenny Phung

Mortgage Market Update



This week brings us the release of four economic reports that may impact mortgage rates, one of which is considered to be highly influential. In addition to the economic data, there are also a couple of Treasury auctions mid-week. The most important events are set for the latter part of the week, so we can expect to see the most movement in rates those days. June's Existing Home Sales from the National Association of Realtors will kick off the week's calendar late Tuesday morning. This report gives us a measurement of housing sector strength and mortgage credit demand. Current forecasts are calling for little change from May's totals. A drop in sales would be considered good news for bonds and mortgage rates because a weakening housing sector makes broader economic growth more difficult. However, unless this data varies greatly from forecasts it probably will lead to only a minor change in mortgage rates. We will get another housing sector release late Wednesday morning when the Commerce Department posts June's New Home Sales report. This data tracks sales of newly constructed homes, but they make up a much smaller portion of the housing sector than existing home sales. Analysts are expecting to see a rise from May's sales, indicating that the new home portion of the housing sector strengthened last month. Favorable news would be a sizable decline in sales. There are also two Treasury auctions that are worth watching this week. 5-year Notes will be sold 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. On the other hand, strong sales usually make bonds more attractive to investors, bringing more funds into the bond market. The buying of bonds that follows translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during early afternoon hours Wednesday and Thursday. The Commerce Department will post June's Durable Goods Orders at 8:30 AM ET Thursday. Current forecasts are calling for an increase in new orders of 1.0% from May to June. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. A much stronger than expected rise may lead to higher mortgage rates Thursday morning because it would point towards economic strength. If it reveals a large decline in new orders, mortgage rates should move lower. It should be noted though that this data is known to be extremely volatile from month to month, so a minor difference between forecasts and the actual reading may not move the markets or mortgage rates. Friday starts with the preliminary reading of the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. This index is considered to be the benchmark indicator of economic growth or weakness. It is the total of all goods and services that are produced in the U.S. and usually has a great deal of influence on the financial markets. This reading is arguably the single most important report we get regularly. Current forecasts are estimating that the economy grew at a 1.9% annual rate during the second quarter, down from the first quarter's 3.1% pace. A stronger rate of growth should hurt bond prices, leading to higher mortgage rates Friday. But a much smaller than expected reading will likely fuel a bond market rally and push mortgage pricing lower since it would indicate the economy was not as strong as many had thought. Overall, the best candidate for most active day of the week is Friday due to the importance of the GDP reading. Thursday could also be pretty active as a result of the Durable Goods Orders release. The calmest day may be Wednesday. Although, corporate earnings can take centerstage any day of the week, so we will be looking for stocks to have a big influence on bond trading and mortgage rates also.

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