Market Commentary for the Week of December 22nd - Happy Holidays!

This week brings us the release of six pieces of monthly and quarterly economic data that are considered relevant to mortgage rates. It is a holiday-shortened week with the financial markets closing early Wednesday and remaining closed Thursday in observance of Christmas. None of the week’s data is considered key, but some of it does carry enough importance to affect mortgage pricing. All the reports come before the holiday, so the busiest part of the week will be the first couple days.
The first of this week’s releases will be November’s Existing Home Sales figures from the National Association of Realtors late tomorrow morning. It will give us a measurement of housing sector strength and mortgage credit demand and is expected to show a decline in sales, indicating a slowing housing sector. A sizable decline in sales would be considered positive for bonds and mortgage rates because a softening housing market makes broader economic growth more difficult. But unless the actual sales figures vary greatly from forecasts, the results will probably have a minor impact on tomorrow’s mortgage rates.
Tuesday has most of this week’s reports plus the first of two Treasury auctions. There are five pieces of economic data being posted Tuesday morning. It starts with November’s Durable Goods Orders at 8:30 AM ET. This data gives us an important measurement of manufacturing sector strength by tracking orders for big-ticket items or products that are expected to last at least three years such as appliances, airplanes and electronics. Analysts are expecting the report to show a 2.9% rise in new orders. A decline in new orders would indicate that the manufacturing sector was weaker than many had thought. This would be good news for the bond market and should help push mortgage rates lower. However, a much larger jump in orders could lead to mortgage rates moving higher early Tuesday morning. This data is known to be quite volatile from month-to-month though, so it is not unusual to see large headline numbers in this report.
Also at 8:30 AM ET Tuesday is the final revision to the 3rd Quarter Gross Domestic Product (GDP). I don’t think this data will have an impact on mortgage rates unless it varies greatly from its expected reading. Last month’s first revision showed that the economy expanded at a 3.9% annual pace during the quarter and this month’s final revision is expected to show a 4.2% growth rate. A revision higher than that would be considered bad news for bonds. But since this data is quite aged at this point and 4th quarter numbers will be posted next month, I am not expecting this release to affect rates Tuesday.
There are three reports being released late morning Tuesday. The first of that group is the revised University of Michigan Index of Consumer Sentiment for December just before 10:00 AM ET. Current forecasts are calling for no change from the preliminary reading of 93.8. This is a fairly important index because rising consumer confidence indicates that consumers feel better about their own financial and employment situations, meaning they be more apt to make large purchases in the near future. A reading above forecasts would be negative for bonds and mortgage rates while a large decline would be favorable.
Next up is November’s Personal Income and Outlays data at 10:00 AM ET. It will give us an important measurement of consumer ability to spend and current spending habits. Since consumer spending makes up over two-thirds of the U.S. economy, any related data usually has a noticeable impact on the financial markets and mortgage rates. Current forecasts are calling for a 0.5% increase in income and a 0.5% increase in spending. If this report reveals weaker than expected readings, we could see the bond market improve and mortgage rates drop slightly late Tuesday morning, especially if the Durable Goods Orders report gives us favorable results also.
November’s New Home Sales data is the final economic report of the week. This report gives us another measurement of housing sector strength and mortgage credit demand. It is the sister report of Monday’s Existing Home Sales report, but covers a much smaller portion of the housing market than that one does. A weakening housing sector is considered good news for the bond market and mortgage rates because broader economic growth is less likely in the immediate future. Since bonds tend to thrive in weaker economic conditions, a large decline would be considered favorable for bond prices and mortgage rates. Current forecasts are calling for a slight increase in sales of newly constructed homes. Ideally, we would like to see a large drop in sales.
In addition to this week’s economic data, we also have Treasury auctions scheduled the first three days. The two that are most likely to influence mortgage rates are Tuesday’s 5-year and Wednesday’s 7-year Note sales. If those sales are met with a strong demand, bond prices may rise enough to lead to improvements in mortgage rates shortly after the results are posted. They will be announced at 1:00 PM Tuesday and 11:30 AM Wednesday. But a lackluster investor demand may create bond selling and upward revisions to mortgage rates Tuesday and/or Wednesday.
We also have early closings this week that sometimes influence trading. The stock and bond markets will both close early Wednesday ahead of the Christmas Day holiday and will reopen for regular trading hours Friday. Trading will likely be thin Wednesday, particularly during late morning and early afternoon hours as traders head home for the holiday and again Friday. It is fairly common for some traders to sell small portions of their holdings before a holiday or long weekend to protect themselves from unforeseen events that may take place while U.S. markets are closed. That is more common on 3-day weekends than just a day-and-a-half holiday, especially when the geo-political and international financial issues seem to be calm. However, the possibility does exist, so minor losses in trading Wednesday morning will not be of much concern.
Overall, labeling Tuesday as the key day of the week for mortgage rates is an easy call with five report releases and one auction all taking place. Friday should be the calmest day due to the expected light trading and nothing of importance scheduled for release. After Tuesday, I don’t think we have much to be concerned about regarding mortgage rate movement. However, it still would be prudent to watch the markets and maintain contact with your mortgage professional if still floating an interest rate.