This week brings us the release of seven economic reports that may impact mortgage rates, one of which is considered to be highly influential. In addition to the economic data, there is also another FOMC meeting that certainly has the potential to cause chaos in the markets and a couple of Treasury auctions mid-week. There is at least one event set for every day, so there is a strong likelihood of seeing noticeable mortgage rate movement and possibly multiple intra-day revisions this week.
June's Existing Home Sales from the National Association of Realtors will kick off the week’s calendar late tomorrow morning. This report gives us a measurement of housing sector strength and mortgage credit demand. Current forecasts are calling for a small decline in sales 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.
Late Tuesday morning, the Conference Board will release their Consumer Confidence Index (CCI) for July. This index measures consumer sentiment, giving us an idea of consumer willingness to spend. If consumers are more confident in their own financial and employment situations, they are apt to make large purchases in the near future. This is important because consumer spending makes up such a large portion of our economy. If the CCI reading is weaker than expected, meaning that consumers were less confident than thought and likely will delay making a large personal purchase, we may see bond prices rise and mortgage rates drop Tuesday morning. Current forecasts are calling for a reading of 116.8, which would be a weaker reading than June's 118.9 and indicate consumers are a little less comfortable with their finances than they were last month.
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 little change from May’s sales, indicating that the new home portion of the housing sector was flat last month. Favorable news would be a sizable decline in sales.
Wednesday afternoon has the adjournment of the FOMC meeting that begins Tuesday. This is not a meeting that will be followed by a press conference with Fed Chair Yellen nor is it expected to yield a change to key interest rates. Many analysts believe the Fed will make their next increase to key short-term interest rates late this year, not this week. Anything in the post-meeting statement that either confirms or contradicts that theory will cause volatility in the markets. The meeting will adjourn at 2:00 PM ET, so any reaction will come during mid-afternoon hours.
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 2.9% 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 2.8% annual rate during the second quarter, rebounding from the first quarter's 1.4% annual rate. 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.
Also at 8:30 AM will be the 2nd Quarter Employment Cost Index (ECI) that tracks employer costs for wages and benefits. This release will give us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would be bad news for bonds and mortgage shoppers. A smaller than expected increase would be good news for the bond market and mortgage pricing. Current forecasts are showing a rise of 0.6%.
The week's calendar closes with July's University of Michigan Index of Consumer Sentiment just before 10:00 AM ET Friday that will help us measure consumer optimism about their own financial situations. This data is considered relevant because rising consumer confidence usually translates into higher levels of spending that adds fuel to economic growth that makes bonds less appealing to investors. Friday's release is an update to the preliminary reading we saw two weeks ago, so unless we see a drastic revision to the preliminary estimate of 93.1, I think the markets will probably shrug off this news.
Overall, Wednesday has great potential to be the most active day for mortgage rates due to the FOMC meeting. However, there is also a chance that it will yield no surprises and cause little change to rates. If that’s the case, Friday will probably end up being the most important day of the week. The calmest day could be tomorrow or Tuesday. There is plenty on tap this week that may influence mortgage rates, so please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.