Thursday’s bond market has opened in positive territory following a batch of
favorable economic reports. The stock markets are mixed but relatively calm
during early trading with the Dow down 7 points and the Nasdaq up 3 points.
The bond market is currently up 12/32, which should improve this morning’s
mortgage rates by approximately .125 of a discount point if comparing to
yesterday’s morning pricing. As we saw Tuesday, the bond market weakened
during afternoon trading yesterday, causing some lenders to revise rates
upward. Those losses are preventing more of an improvement in this
morning’s pricing than today’s opening strength would usually create.
April's Consumer Price Index (CPI) was the most important of today’s three
economic reports. The Labor Department announced early this morning that
the overall CPI reading fell 0.4% last month while the core reading rose
0.1%. Both readings were weaker than what analysts were expecting (-0.2%
and +0.2% respectively), indicating inflationary pressures were softer at
the consumer level of the economy than many had thought. That makes both
good news for the bond market and mortgage pricing.
They also said that 360,000 new claims for unemployment benefits were filed
last week, up considerably from the revised total of 328,000 of the
previous week. Since this was a sizable upward move and was much higher
than the 330,000 initial claims that was forecasted, we should also
consider this good news for mortgage rates as it points toward a weakening
employment sector.
The final report of the day was April's Housing Starts. It revealed a 16.5%
drop in new home construction starts last month that was much weaker than
analysts were expecting to see. That would indicate weakness in the new
home part of the housing sector. However, a secondary reading that tracks
new permits for future construction starts showed the highest number since
June 2008. This data leads us to believe that April was a bad month for new
homes, but May and June will likely be much stronger. The conflicting
readings offset each other, leaving the other two reports to drive bond
trading and mortgage pricing this morning.
Tomorrow has the remaining two pieces of economic data scheduled for
release. They both will come during late morning trading tomorrow and
neither is considered to be highly important. The first is May's preliminary
reading to the University of Michigan's Index of Consumer Sentiment just
before 10:00 AM ET. 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 of 76.4, 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 likely
move slightly lower because waning confidence means consumers are less apt
to make a large purchase in the near future.
The week closes with the release of April's Leading Economic Indicators
(LEI) at 10:00 AM ET. 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 tomorrow.
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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