This week brings us the release of five pieces of economic data that may impact mortgage rates in addition to two Treasury auctions and the minutes from the latest FOMC meeting. None of the events are considered key or expected to be a market mover, but most of the reports carry enough importance to affect mortgage pricing if they show a decent sized variance from forecasts. There is nothing set for release Monday, leaving the stock markets to be most likely force behind a noticeable move in rates today.
The first release of the week will be April's New Home Sales report at 10:00 AM ET Tuesday. This data gives us a small measurement of housing sector strength and future mortgage credit demand but probably will not have much of an impact on mortgage pricing unless it shows a sizable variance from forecasts. Analysts are expecting to see a decline in sales from March's level, meaning the new home portion of the housing sector softened last month.
The National Association of Realtors will bring us the first of Wednesday’s three events when they post their Existing Home Sales report at 10:00 AM ET. As with its sister report (New Home Sales), this data will also give us a measurement of housing sector strength demand but tracks resales of existing homes in the U.S. This type of data is relevant because a weakening housing sector makes broader economic growth less likely. Current forecasts are calling for a decline in home sales between March and April. Ideally, the bond market would prefer to see a large decline, indicating housing sector weakness. A large increase in sales could lead to bond weakness and a slight increase in mortgage rates Wednesday morning since a strengthening housing sector raises optimism about general economic growth.
The day’s other two events will come during afternoon trading. One is the minutes of the last FOMC meeting. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation or concerns regarding economic growth. The goal is to form opinions about the Fed's next move regarding interest rates, which is expected to happen at an upcoming FOMC meeting. Since the minutes will be released at 2:00 PM ET, if there is a market reaction to them it will be evident during mid-afternoon trading Wednesday.
Also Wednesday is the first of this week's two Treasury auctions that are worth watching. The Fed will auction 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. On the other hand, strong sales usually make bonds more attractive to investors, bringing more funds into bonds. The buying of bonds that follows often 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 afternoon hours Wednesday and Thursday.
Friday has three reports scheduled that are relevant to mortgage rates. The first revision to the 1st quarter Gross Domestic Product (GDP) will come at 8:30 AM ET. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth. Last month's preliminary reading revealed a 0.7% annual rate of growth. Analysts expect an upward revision of 0.1% in this update, equating to economic growth of 0.9%. If the revision comes in much stronger than expected, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter. Since bonds tend to thrive in weaker economic conditions, a softer than predicted reading would be good news for mortgage rates.
April's Durable Goods Orders will also be released early Friday morning. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket products. These are items made with an expected life span of three or more years such as airplanes, appliances and electronics. It is currently expected to show a decline in new orders of approximately 2.0%, hinting that the manufacturing sector weakened last month. That would be relatively good news for the bond market and mortgage rates, but this data is known to be quite volatile. Therefore, a small variance from forecasts will likely have little impact on Friday's mortgage rates. The larger the decline, the better the news it is for mortgage rates.
The last mortgage-related data of the week will come from the University of Michigan late Friday morning when they update their Index of Consumer Sentiment for May. This type of data is watched fairly closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Rising confidence and the higher levels of spending that usually follow are considered negative news for bonds and mortgage rates. Friday's report is expected to show no change to this month's preliminary reading of 97.7. A higher reading would be considered bad news for bonds and mortgage pricing while a large decline should help boost bond prices and lead to a slight improvement in rates.
Friday is the most important day of the week with three pieces of data being released, but Wednesday may also be pretty active. The least important day will probably be Monday or Thursday. Last week’s bond rally pushed the benchmark 10-year Treasury yield below a key level of 2.25% before inching back to it. If it breaks above, there is a high probably of it and mortgage pricing moving noticeably higher. On the other hand, if that level holds, there is room for further improvements in rates. The next couple of days will tell which direction we are likely headed. Accordingly, please proceed cautiously if still floating an interest rate and closing in the near future as we could see a big move in either direction this week.