This week brings us the release of seven economic reports that may have the
potential to influence mortgage rates. There is data scheduled to be posted
four of the five days, including tomorrow. We saw plenty of movement in
rates last week despite the lack of factual economic reports. Unfortunately
for mortgage shoppers, they moved higher and this week may not be any
different. Therefore, please proceed cautiously as this could be another
ugly week for rates if the data gives us stronger than expected results.
The first piece of data this week is April's Retail Sales at 8:30 AM ET
tomorrow morning. This is an extremely important report for the financial
markets since it measures consumer spending. Consumer spending makes up
over two-thirds of the U.S. economy, so this data can have a pretty
significant impact on the markets. Current forecasts are calling for a 0.3%
decline in sales from March to April. A weaker than expected level of sales
should push bond prices higher and mortgage rates lower tomorrow morning as
it would signal that economic activity may not be as strong as thought.
However, an unexpected increase could renew theories of economic growth
that would lead to more stock buying and bond selling that would push
mortgage rates higher.
There is nothing of relevance scheduled for Tuesday, but Wednesday has two
reports that we will be watching. April's Producer Price Index (PPI) is the
first at 8:30 AM ET. It helps us measure inflationary pressures at the
producer level of the economy. If this report reveals weaker than expected
readings, indicating inflation is not a concern at the producer level, we
should see the bond market improve. The overall index is expected to fall
0.5%, while the core data that excludes more volatile food and energy
prices has been forecasted to rise 0.1%. A decline in the core data would
be ideal for mortgage shoppers because inflation is the number one nemesis
for long-term securities such as mortgage-related bonds. As inflation
rises, longer-term securities become less appealing to investors since
inflation erodes the value of those securities’ future fixed interest
payment. That is why the bond market tends to thrive in weaker economic
conditions with low levels of inflation.
The second report of the day Wednesday is April's Industrial Production at
9:15 AM ET. It measures manufacturing sector strength by tracking output at
U.S. factories, mines and utilities. It is expected to show a 0.2% decline
in production, indicating that manufacturing activity is growing. A larger
than expected decrease in output would be good news for the bond market and
mortgage rates because it would indicate that the manufacturing sector is
not as strong as thought. This report is considered to be moderately
important, so it will likely need to show unexpected strength or weakness
to cause movement in mortgage rates. The PPI report will probably be the
biggest influence on bond trading and mortgage rates Wednesday.
April's Consumer Price Index (CPI) will also be posted at 8:30 AM ET
Thursday. It is the sister report of Wednesday’s PPI report, but measures
inflationary pressures at the more important consumer level of the economy.
These results will be watched closely and could lead to significant
volatility in the bond market and mortgage pricing if they show any
surprises. Current forecasts are calling for a 0.2% decline in the overall
index and a 0.2% rise in the core data reading. As with the PPI, the core
data is the more important of the two readings and will help dictate
mortgage rate direction.
Also early Thursday will be the release of April's Housing Starts. This
data measures housing sector strength and mortgage credit demand by
tracking newly issued permits and actual starts of new home construction.
It is expected to show a drop in new starts from March's reading, hinting
at housing sector weakness. However, since this report is not considered to
be of high importance to the bond market, it likely will have little impact
on mortgage rates unless it varies greatly from forecasts, especially with
a key measurement of inflation being posted at the same time.
The last two pieces of data come late Friday morning. May's preliminary
reading to the University of Michigan's Index of Consumer Sentiment will be
released just before 10:00 AM ET Friday. This index measures consumer
willingness to spend, which relates to consumer spending. If consumers are
more confident in their own financial situations, they are more apt to make
large purchases in the near future. This report usually has a moderate
impact on the financial markets though, because it is not exactly factual
data. It is expected to show a reading of 78.5, which would be an increase
from April’s final reading, indicating consumers are more confident and
more likely to spend than they were last month. If it shows a large decline
in consumer confidence, bond prices could rise and mortgage rates would
move slightly lower because waning confidence means consumers are less apt
to make a large purchase in the near future.
The week’s calendar closes with the release of April's Leading Economic
Indicators (LEI) at 10:00 AM ET Friday. This Conference Board report
attempts to predict economic activity over the next three to six months. It
is expected to show a 0.3% increase from March's reading, meaning that
economic activity is likely to strengthen slightly over the next few
months. A decline would be good news for the bond market and mortgage
rates, while an increase could cause mortgage rates to inch higher Friday.
Overall, it is likely going to be an active week for the financial and
mortgage markets. I am predicting tomorrow or Thursday will be the most
important day for mortgage rates, but we could see noticeable movement in
rates multiple days this week. The lightest day will likely be Tuesday
unless it is an overly volatile day for stocks. Accordingly, I strongly
recommend maintaining contact with your mortgage professional if still
floating an interest rate and closing in the near future.
If I were considering financing/refinancing a home, I would.... Lock if my
closing was taking place within 7 days... Lock if my closing was taking
place between 8 and 20 days... Lock if my closing was taking place between
21 and 60 days... Float if my closing was taking place over 60 days from
now...
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