Mortgage Market Update
This week has plenty scheduled that may affect mortgage rates. In addition to the large batch of economic data there also are a couple of Treasury auctions that we will be watching. Furthermore, the annual Fed Jackson Hole conference is taking place Friday. This is where the world's central bankers meet to discuss the global economy and share ideas to control it. The conference has plenty of speeches by key central bank members that often heavily influence the markets.
Starting this week's calendar is July's Existing Home Sales report late tomorrow morning. The National Association of Realtors will release this report, giving us a measurement of housing sector strength. It covers a high percentage of all home sales in the U.S., but usually does not have a major influence on bond trading and mortgage rates unless it varies greatly from analysts' forecasts. It is expected to show a slight decline from June's sales, meaning the housing sector softened a little last month. A weakening housing sector makes broader economic growth less likely. Therefore, the lower the number of sales, the better the news it is for mortgage rates.
July's New Home Sales data is set for release Tuesday morning at 10:00 AM ET. This report will give us another indication of housing sector strength and mortgage credit demand but tracks only a small portion of all home sales. The majority of U.S. home sales are covered in the Existing Home Sales report. This data usually doesn't have much of an impact on bond prices or mortgage rates. Current forecasts are calling for an increase in sales of newly constructed homes last month. A large increase in sales would indicate housing sector strength, making the data negative for mortgage rates.
Wednesday has the most important release of the week with July's Durable Goods Orders scheduled for 8:30 AM ET. This Commerce Department report is an important measurement of manufacturing sector strength. It tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years such as appliances, electronics and airplanes. Analysts are expecting to see a rise of 0.3% in new orders, pointing towards modest manufacturing sector growth. This data is known to be quite volatile from month to month, so an increase doesn't raise too much concern about the economy. However, a much larger increase will be bad news for the bond market and mortgage rates. A secondary reading that excludes more volatile transportation-related orders is expected to rise 0.4%. The softer the reading, the better the news it is for the bond and mortgage markets.
That day also has the first of this week's two Treasury auctions that are worth watching. 5-year Notes will be sold Wednesday while 7-year Notes go 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.
Along with last week's unemployment figures, we will also get the first revision to the 2nd Quarter Gross Domestic Product (GDP) reading at 8:30 AM ET Thursday. The GDP is the total of all goods and services produced in the U.S. and is considered to be the best benchmark of economic growth or contraction. This reading is the second of three that we see each quarter. Last month's preliminary reading revealed that the economy grew at an annual rate of 6.5%. Thursday's revision is expected to show a 6.6% annual rate of growth. A minor upward or downward adjustment won't have much of an impact on the markets or rates. There will be a final revision issued next month, although it probably will have little impact on mortgage rates since traders will be more interested in the current quarter's activity.
Friday has two pieces of relevant economic data that we need to be concerned with. The first is July's Personal Income and Outlays report at 8:30 AM ET, giving us a measurement of consumer ability to spend and current spending habits. It is expected to show a 0.2% rise in income and a 0.4% rise in spending. Since consumer spending makes up such a large portion of the U.S. economy, weaker than expected numbers would be considered good news for the bond market and mortgage rates. Also adding to the importance of this report is an inflation reading within the data that the Fed relies heavily on during their FOMC meetings.
The final report of the week will be the University of Michigan's revised Index of Consumer Sentiment for August at 10:00 AM ET. This sentiment index also helps us track consumer willingness to spend. It is expected to have risen a little from August's preliminary reading of 70.2. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates because waning confidence usually means that consumers are less likely to make large purchases in the near future. The lower the reading we get, the better the news it is for mortgage shoppers.
Also worth noting is the annual Jackson Hole Fed conference Friday. There have been major events to come out of this event in the past while others have been non-factors. This year's events will be held virtually due to the concerns about the pandemic. Federal Reserve Chairman Powell is scheduled to speak at 10:00 AM Friday, which will be watched very closely. The best chance of seeing a reaction is Friday morning.
Overall, Wednesday or Friday are the best candidates for most active day for rates while Tuesday could be the calmest day. That said, any day can become quite volatile if unexpected financial or economic news is announced. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.