This week brings us the release of six pieces of relevant economic data along with two Treasury auctions that have the potential to affect mortgage rates. Most of the reports can influence mortgage rates but none of them are considered extremely important or key data.
The first will come late tomorrow morning when February's Existing Home Sales report is posted by the National Association of Realtors. It will give us a measurement of housing sector strength and mortgage credit demand. It is expected to reveal an increase in home resales, meaning the housing sector improved last month. Ideally, bond traders would prefer to see a decline in sales, pointing towards a weakening housing sector. Bad news would be a sizable increase in sales, indicating that the housing sector is gaining momentum. That could be troublesome for the bond market and mortgage rates because housing strength makes broader economic growth more likely.
February's Consumer Price Index (CPI) will be released at 8:30 AM ET Tuesday, which measures inflationary pressures at the very important consumer level of the economy. Its results are watched closely by bond market traders and analysts because rising inflation makes long-term securities such as mortgage-related bonds less appealing to investors and may alter the Fed’s timeline for raising short-term rates. It is expected to show a 0.2% increase in the overall index and a 0.1% rise in the more important core data that excludes more volatile food and energy prices. If we see weaker than expected readings like we did in its’ sister release Producer Price Index (PPI), bond prices should rise and mortgage rates will likely fall early Tuesday.
Also Tuesday morning, the Commerce Department will give us February's New Home Sales figures. They are expected to announce a decline in sales of newly constructed homes. This report tracks a much smaller percentage of home sales than Monday's Existing Home Sales report covered, so it should have a much weaker influence on the markets and mortgage pricing. A large increase in sales would be negative for the bond market and mortgage pricing because it would point towards economic strength.
Wednesday's only economic data is February's Durable Goods Orders at 8:30 AM ET. This Commerce Department report gives us a measurement of manufacturing sector strength by tracking new orders for big-ticket items, or products that are expected to last three or more years such as electronics, appliances and airplanes. This data is known to be volatile from month to month but is still considered to be of fairly high importance to the markets. Analysts are expecting it to show an increase in new orders of approximately 0.5%. A much larger increase would be considered negative for bonds as it would indicate economic strength and could lead to higher mortgage rates Wednesday morning. Since these orders are volatile, it will take a wider variance from forecasts for it to move mortgage rates than other data requires.
Friday has two pieces of data scheduled that are worth watching. The final revision to the 4th Quarter GDP is first at 8:30 AM ET. This is the second and final revision to January's preliminary reading of the U.S. Gross Domestic Product, or the sum of all goods and services produced in the U.S. The GDP is the benchmark measurement of economic activity. It is expected to show that the economy grew at an annual pace of 2.4% last quarter, up from the previous estimate of 2.2% that was released last month. Analysts are now more concerned with next month's preliminary reading of the 1st quarter than data from three to six months ago, so I don't expect this report to affect mortgage rates much.
The final report of the week comes from the University of Michigan just before 10:00 AM ET Friday. Their revision to their March Consumer Sentiment Index will give us another indication of consumer confidence, which hints at consumers' willingness to spend. Rising confidence is considered bad news for the bond market and mortgage pricing because it usually means consumers are more willing to spend. Friday's report is expected to show little change from the preliminary reading of 92.1. Favorable results for bonds and mortgage rates would be a sizable decline in confidence.
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, strong sales usually make bonds more attractive to investors and bring more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during afternoon hours.
Overall, I believe Tuesday will be the most active day for mortgage rates with multiple reports but Wednesday’s only data is arguably the most important report of the week so it could be an active day also. I am expecting to see a much calmer week for rates this week than we saw last week. Still, with events set for each day, we still could see movement in rates for the week.