This week brings us the release of five monthly economic reports that may affect mortgage rates with one of them being considered extremely important to the financial and mortgage markets. The week's calendar and pandemic news, along with corporate earnings reports, makes it very likely that this will be yet an active week for mortgage rates.
The first report of the week will be March's Existing Homes Sales numbers from the National Association of Realtors at 10:00 AM ET Tuesday. This report gives us an indication of housing sector strength and mortgage credit demand. It can influence mortgage pricing if it shows a sizable variance from forecasts. Ideally, the bond market would like to see a decline in home resales because a softening housing sector makes broader economic growth more difficult. Analysts are expecting to see a large decline in sales between February and March as transactions failed to close because of the coronavirus. The larger the decrease, the better the news it is for bonds and mortgage rates.
Next up will be weekly unemployment figures early Thursday morning. They are expected to show another big number of new filings, but less than each of the previous four weeks. Since rising claims is a sign of employment sector weakness, the more claims made the better the news it is for mortgage pricing. This data has recently been made much more relevant than it used to be because it is the freshest employment number available to us. It will show how much of a negative impact the pandemic is having on the sector. Last week’s release showed that all of the country’s job growth since the financial meltdown of 2008 was erased in just a few weeks.
That will be followed by March's New Home Sales numbers at 10:00 AM ET Thursday. This Commerce Department report tracks a much smaller portion of all home sales than the Existing Home Sales report does. It also gives us an indication of housing sector strength and future mortgage credit demand. However, unless it varies greatly from analysts' forecasts, I am not expecting the data to cause much movement in mortgage rates. Analysts are also forecasting a large decline in sales of newly constructed homes.
Getting into the more important data of the week, March's Durable Goods Orders will be released early Friday morning. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. These are products that are expected to last three or more years, such as appliances, electronics and airplanes. Current forecasts are calling for a decline in new orders between 7.0 and 12%, due mostly to the effect of the pandemic. Weaker manufacturing activity is favorable news for mortgage rates.
The week closes with the University of Michigan's revised Index of Consumer Sentiment for April at 10:00 AM ET Friday. This report gives us an indication of consumer sentiment and their willingness to spend. Current forecasts are calling for downward revision from the preliminary reading of 71.0. This means that surveyed consumers were less optimistic about their own financial situations than they were earlier this month. This data is relevant because waning confidence in their own financial situations usually means consumers are less apt to make a large purchase in the near future. Since consumer spending makes up approximately 70% of the U.S. economy, related data is watched fairly closely.
We also will be in earnings season this week, where publicly traded companies post their quarterly earnings and forward guidance. These releases generally have a more direct impact on stock trading than bonds or mortgage pricing. That said, stock selling fueled by earnings disappointment can cause funds to shift into bonds for safety. Analysts don’t know what to expect from this quarter’s earnings as they have no idea how badly the coronavirus is affecting businesses yet. These announcements will shed light on that topic and could easily contribute to this week’s movement in rates.
Another topic to watch is the next round of stimulus funding in Washington. There is a strong possibility that congress will reach an agreement for more funding related to the pandemic. The potentially negative issue is not the approval or the fact that more funding is needed. It is that the price tag for the stimulus package keeps rising. That means more debt for the government to sell, adding even more supply to the bond market in the near future that could pressure pricing of bonds currently being traded. Fortunately, mortgage bonds are still disengaged from Treasuries, meaning that added pressure may not directly affect rates. It is a topic worth noting though as it could come into play.
Overall, Friday is best candidate for most active day due to the durable goods data and the consumer sentiment reading, but we could see volatility any day because there is still so much going on that the markets are interested in. Accordingly, proceed cautiously if still floating an interest rate and closing in the near future.