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Tuesday’s bond market has opened in positive ground even though stocks are
showing gains also. The Dow is currently up 48 points while the Nasdaq has
gained 22 points. The bond market is currently up 5/32, which should
improve this morning’s mortgage rates by approximately .125 of a discount
point.
The Conference Board gave us today’s only relevant economic data when they
posted their Consumer Confidence Index (CCI) for July at 10:00 AM ET. They
announced a reading of 80.3 for July that was lower than the 81.6 that was
expected and more importantly, a decline from June’s revised reading of
82.1. This means that surveyed consumers were not as optimistic about their
own financial situations as many analysts had thought and less than last
month. This is good news for the bond market and mortgage rates because
waning confidence usually translates into weaker levels of consumer
spending that fuels economic growth.
Tomorrow is going to be a very interesting day that will likely be quite
volatile for the financial and mortgage markets. It starts with the release
of the most relied upon measurement of economic growth at 8:30 AM ET. That
report is the preliminary reading of the 2nd Quarter Gross Domestic Product
(GDP). It is the total of all goods and services that are produced in the
U.S. on a quarterly basis and usually has a great deal of influence on the
financial markets. This reading is arguably the single most important
report we get regularly. Current forecasts are estimating that the economy
grew at a 1.1% annual rate during the second quarter. A faster pace will
probably hurt bond prices, leading to higher mortgage rates tomorrow
morning. But a smaller than expected reading would likely fuel a bond
market rally and lead to lower mortgage pricing since it would indicate the
economy was not as strong as many had thought.
The second report of the day will be Employee Productivity and Costs data
for the second quarter, also at 8:30 AM ET. It will give us an indication
of employee output per hour worked. High levels of productivity are
believed to allow the economy to grow without fears of inflation. I don't
see this being a big mover of mortgage pricing, partly because it comes the
same time as the GDP reading. Analysts are currently expecting to see an
increase in productivity of 0.4%. A large increase in productivity and a
decline in costs would be ideal news for mortgage rates, but I suspect that
this data will have little impact on tomorrow’s mortgage rates.
The fifth FOMC meeting of the year is a two-day event that began today and
will adjourn at 2:00 PM ET tomorrow. This is not a meeting that will be
followed by a press conference with Chairman Bernanke. It is expected to
yield no change to key interest rates, but there is speculation that the
post meeting statement may clarify the Fed’s position or estimation of when
they will begin to slow their current $85 billion monthly bond buying
program (QE3). This topic has caused a firestorm in the markets multiple
times over the past two months, and not always logically. Therefore, it is
difficult to make a prediction of what to expect. Theoretically, we would
like to hear something that would hint the Fed will not start tapering their
purchases in September as many analysts currently believe. One would think
that since the current consensus had September as the beginning, hearing it
again would not have a negative impact on the bond market. Unfortunately,
logic and history does not seem to be a good indicator on how the markets
will react to such news recently. That leaves us little to base a
prediction on, other than to hold our breath and hope sanity quickly
returns to the markets.
Regardless, it is safe to assume that it will be an active day in the
markets and mortgage rates tomorrow. Key economic data in the morning and
then the FOMC meeting in the afternoon significantly raises the likelihood
of seeing multiple intra-day revisions to mortgage rates tomorrow. The
benchmark 10-year Treasury Note yield is currently at 2.58%, which is above
one threshold of 2.49% but well below a significant level of 2.95%. I
believe that by tomorrow afternoon’s close we will be either below 2.49% or
much closer to the 2.95% than we are today. Since mortgage rates follow
bond yields, the latter would be bad news for mortgage shoppers. There is a
lot to potentially gain by floating an interest rate into tomorrow’s
events, however, there is also plenty of risk. Therefore, please be
cautious and maintain contact with your mortgage professional if still
floating an interest rate.
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... Lock if my closing was taking place over 60 days from
now...
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