Market Commentary for the Week of June 23rd

This week brings us the release of seven economic reports for the markets to digest in addition to two Treasury auctions that have the potential to come into play for mortgage rates. The first is May’s Existing Home Sales report from the National Association of Realtors at 10:00 AM ET Monday. This report tracks resales of existing homes, giving us a measurement of housing sector strength. It is considered to be moderately important to the markets, but can influence mortgage rates if it shows a sizable difference between forecasts and actual results. Analysts are currently expecting to see an increase in home sales, pointing towards a stable housing sector. That would be slightly negative news for the bond market and mortgage rates. A weaker housing sector makes overall economic growth more difficult, so a sizable decline would be ideal for bonds and mortgage shoppers.

Tuesday has May’s New Home Sales report, but during late morning trading. It helps us measure housing sector strength by tracking sales of newly constructed homes. This report is similar to the Existing Home Sales report, but covers a much smaller portion of sales than that report does. It is expected to show a small increase in sales, but will likely not have much of an impact on mortgage rates because this data gives such a small snapshot of the housing sector. I believe it will take a large rise in sales or a sizable decline for this data to influence mortgage rates.

June’s Consumer Confidence Index (CCI) is the second report of the day Tuesday. It will also be posted at 10:00 AM ET and is important to the financial markets because it measures consumer willingness to spend. If consumers are more confident about their own financial and employment situations, they are more apt to make large purchases in the near future, fueling economic growth. If it shows a sizable increase in confidence from last month, we can expect to see the bond market falter and mortgage rates rise slightly. Current forecasts are calling for a reading of 84.0, up from last month’s 83.0 reading. The lower the reading, the better the news it is for bonds and mortgage rates.

Wednesday has two pieces of data set for release May’s Durable Goods Orders is the first at 8:30 AM ET, giving us an indication of manufacturing sector strength. It tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years such as electronics and appliances. This data is known to be quite volatile from month to month and is expected to show an increase of 0.4% in new orders from April to May. A large decline would be the ideal scenario for the bond market and would hopefully lead to a decline in mortgage pricing as it would indicate manufacturing sector weakness.

The final reading to the 1st Quarter Gross Domestic Product (GDP) will also be posted early Wednesday. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. However, this particular data is quite aged now (covers January through March) and will likely have little impact on the bond market or mortgage pricing unless it varies greatly from previous readings. Market participants are looking more towards next month’s release of this quarter’s initial GDP reading. Last month’s first revision showed a 1.0% decline in the GDP, but analysts are now expecting to see a 1.8% decline meaning the economy was weaker than previously thought. An upward revision would be considered negative for rates as it means stronger economic activity.

May’s Personal Income and Outlays data is scheduled for release Thursday at 8:30 AM ET. This report gives us an indication of consumer ability to spend and current spending activity. They are important because consumer spending makes up over two-thirds of the U.S. economy. If consumer income is rising, they have more money to spend each month. Analysts are expecting to see an increase of 0.4% in income and a 0.4% rise in the spending portion of the report. Smaller increases or declines in both of these readings would be good news for the bond market and mortgage rates.

The University of Michigan will close out this week’s data when they update their Index of Consumer Sentiment for May late Friday morning. This index gives us a measurement of consumer willingness to spend. As with Tuesday’s CCI, if consumers are more comfortable with their own financial situations, they are more apt to make large purchases in the near future. Since consumer spending makes up such a large portion of our economy, any related data has the potential to affect bond trading and mortgage rates. A downward revision would be considered good news for bonds and rates, but forecasts are calling for an upward revision from this month’s preliminary reading of 81.2.

Also worth noting is the fact that the Fed will be selling more debt this week. These sales may influence broader bond trading enough to affect mortgage rates if they show strong or weak investor demand. There are sales every day except Friday but the two most likely to affect rates are Wednesday’s 5-year Note sale and Thursday’s 7-year Note auction. If they are met with a strong demand, we could see bond prices rise during afternoon trading. This could lead to afternoon improvements to mortgage rates also. But, if the sales draw a lackluster interest from investors, mortgage rates may move higher during afternoon trading those days.

Overall, it is difficult to label one particular day as the most important of the week. None of the data on the calendar is considered to be highly important, but Tuesday and Wednesday have two of the more important reports of the week. We saw some strength in bonds late Friday, so we are going into the week with a small improvement priced in Monday’s opening if your lender did not improve Friday afternoon. I believe we could see more afternoon volatility in the markets multiple days this week despite the lack of a key economic report or Fed-related events. Therefore, please keep an eye on the markets and maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.