Mortgage California Blog

Mortgage Market Weekly Commentary

March 21st, 2016

accounting financial graphs analysisThis week brings us the release of only four pieces of relevant economic data for the markets to digest. However, there are only three and a half trading days for it to be posted due to the Good Friday holiday. Most of the reports can influence mortgage rates if they show surprises, but none of them are considered extremely important or key data.

The first will come late Monday morning when February’s Existing Home Sales report is posted by the National Association of Realtors. It will give us a measurement of housing sector strength and mortgage credit demand. It is expected to reveal a decline in home resales, meaning the housing sector softened last month. Ideally, bond traders would prefer to see a large decline in sales, pointing towards a rapidly weakening housing sector. Bad news would be a sizable increase in sales, indicating that the housing sector is gaining momentum. That could be troublesome for the bond market and mortgage rates because housing strength makes broader economic growth more likely.

Tuesday has nothing of importance scheduled to be posted. Wednesday's sole report is February’s New Home Sales figures. The Commerce Department is expected to announce an increase in sales of newly constructed homes. This report tracks a much smaller percentage of home sales than Monday’s Existing Home Sales report covered, so it should have a much weaker influence on the markets and mortgage pricing. A large increase in sales would be negative for the bond market and mortgage pricing because it would point towards economic strength.

February’s Durable Goods Orders will be released Thursday at 8:30 AM ET. This Commerce Department report gives us a measurement of manufacturing sector strength by tracking new orders for big-ticket items, or products that are expected to last three or more years such as electronics, appliances and airplanes. This data is known to be volatile from month to month but is still considered to be of fairly high importance to the markets. Analysts are expecting it to show a decline in new orders of approximately 2.9%. An increase in orders would be considered negative for bonds as it would indicate economic strength and could lead to higher mortgage rates Thursday morning. Since these orders are volatile, it will take a wider variance from forecasts for it to move mortgage rates than other data requires.

Friday has the last piece of data this week. The final revision to the 4th Quarter GDP will at 8:30 AM ET. This is the second and final revision to January’s preliminary reading of the U.S. Gross Domestic Product, or the sum of all goods and services produced in the U.S. The GDP is the benchmark measurement of economic activity. It is expected to show that the economy grew at an annual pace of 1.0% last quarter, unchanged from the previous estimate that was released last month. Analysts are now more concerned with next month’s preliminary reading of the 1st quarter than data from three to six months ago. Because the markets are closed Friday, we won't see a reaction to this report until they reopen next Monday.

The bond market is expected to close early Thursday ahead of the Good Friday holiday. The stock and bond markets will be closed all day Friday and will reopen for regular trading Monday. It is common to see some pressure in bonds as investors make moves to protect themselves over the long holiday, so don't be surprised if bonds weaken slightly early Thursday afternoon before closing. The data itself isn't of much concern but the benchmark 10-year Treasury Note yield closed at 1.87% Friday. Anything above 1.90% is a big concern, in my opinion, as it makes a move about 2.00% likely. Since it slipped below 1.90%, a move downward is more of a possibility than it was the past two weeks. There is potential gains by floating a rate currently. Unfortunately, there is also an elevated risk of a quick upward move in yields and mortgage rates. Therefore, if still floating, please maintain contact with your mortgage professional.

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