Market Commentary for the Week of May 19th

This week brings us the release of only three pieces of relevant economic news in addition to the minutes from the most recent FOMC meeting. None of the economic data is considered to be highly important to the markets and mortgage rates, but they do carry enough significance to influence mortgage rates if they show a wide variance from forecasts. Monday and Tuesday have nothing of importance scheduled, so look for stock movement to heavily influence bond trading and mortgage rates. Stock gains will probably pressure bonds and cause mortgage rates to move higher. If the major stock indexes show losses during the first couple days, we may see bonds thrive and mortgage rates move lower.

The first event of the week comes late Wednesday when the minutes of the last FOMC meeting will be released. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation or geopolitical concerns in the economy and their impact on economic growth. The goal is to form opinions about the Fed’s next move regarding interest rates and their current bond-buying program (QE3). Since the minutes will be released at 2:00 PM ET, if there is a market reaction to them it will be evident during afternoon trading Wednesday.

The National Association of Realtors will give us the first piece of economic data with the release of their Existing Home Sales report at 10:00 AM ET Thursday. This data tracks resales of existing homes in the U.S. during April, giving us a measurement of housing sector strength and mortgage credit demand. This type of data is relevant because a weakening housing sector makes broader economic growth less likely. Current forecasts are calling for an increase in home sales between March and April. Ideally, the bond market would prefer to see a decline, indicating housing sector weakness. A large increase in sales could lead to bond weakness and a small increase in mortgage rates Thursday morning since a strengthening housing sector raises optimism about general economic growth.

April’s Leading Economic Indicators (LEI) will also be released at 10:00 AM ET Thursday. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.5% increase from March’s reading, meaning that economic activity is likely to strengthen over the next few months. A decline would be good news for the bond market and mortgage rates, while a larger increase could cause mortgage rates to inch higher Thursday.

The final release is April’s New Home Sales report late Friday morning. It is the sister report of the Existing Home Sales report. This data gives us a similar measurement of housing sector strength and future mortgage credit demand, but tracks a much smaller portion of housing sales than Thursday’s report does. Actually, it probably will not have much of an impact on mortgage pricing unless it shows a sizable variance from forecasts. Analysts are expecting to see gains in sales from March’s level, meaning the new home portion of the housing sector also strengthened last month.

Overall, I believe Thursday will be the most important day for rates, although Friday should be active also as it will be shortened due to the early close ahead of the Memorial Day. I suspect that Tuesday will be the calmest day of the week. Even though there is nothing to be concerned with Monday, selling in bonds late Friday means there is a small increase in mortgage rates waiting if your lender did not make an upward revision during afternoon trading. I don’t think we will see as much movement in rates was what we saw last week, however, it is still recommended to maintain contact with your mortgage professional if you have not locked an interest rate yet.