This Week’s Market Commentary

This week brings us the release of six pieces of economic data in addition to a couple of Treasury auctions that have the potential to influence mortgage rates. None of the reports are considered to be highly important or labeled as market-movers, but they do carry enough significance to affect mortgage pricing if they show surprises in their results.

May’s New Home Sales report kicks off this week’s data late tomorrow morning. It is similar to last week’s Existing Home Sales report, but tells us how well sales of newly constructed homes were last month. It is expected to show an increase in sales, but will likely not have much of an impact on mortgage rates because this data tracks the small portion of home sales that last week’s report did not. I believe it will take a large rise in sales or a sizable decline for this data to influence mortgage rates.

June’s Consumer Confidence Index (CCI) is the second report of the week. It will be posted late Tuesday morning and is important to the financial markets because it measures consumer willingness to spend. If consumers are more confident about their own financial situations, they are more apt to make large purchases in the near future. If it shows a sizable increase in confidence from last month, we can expect to see the bond market falter and mortgage rates rise slightly. Current forecasts are calling for a reading of 64.0, down from last month’s 64.9 reading. The lower the reading, the better the news for bonds and mortgage rates.

May’s Durable Goods Orders will be posted early Wednesday morning, giving us an indication of manufacturing sector strength. It tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. This data is known to be quite volatile from month to month and is expected to show an increase of 0.5% in new orders from April to May. A large decline would be the ideal scenario for the bond market and would likely lead to a decline in mortgage pricing because it would indicate manufacturing sector weakness.

Thursday’s only monthly or quarterly economic data is the final reading to the 1st Quarter Gross Domestic Product (GDP). The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. However, this particular data is quite aged now (covers January through March) and will likely have little impact on the bond market or mortgage pricing unless it varies greatly from previous readings. Market participants are looking more towards next month’s release of this quarter’s initial GDP reading. Last month’s first revision showed a 1.9% rise in the GDP, which is what analysts are expecting to see again.

Friday has two reports scheduled, the first being May’s Personal Income and Outlays data at 8:30 AM ET. This report gives us an indication of consumer ability to spend and current spending activity. They are important because consumer spending makes up over two-thirds of the U.S. economy. If consumer income is rising, they have more money to spend each month. Analysts are expecting to see an increase of 0.1% in income and a 0.1% rise in the spending portion of the report. Declines in both of these readings would be good news for the bond market and mortgage rates.

The University of Michigan will close out this week’s data when they update their Index of Consumer Sentiment for May late Friday morning. This index gives us a measurement of consumer willingness to spend. As with Tuesday’s CCI, if consumers are more comfortable with their own financial situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related data has the potential to affect bond trading and mortgage rates. A downward revision would be considered good news for bonds and rates, but forecasts are calling for no change from this month’s preliminary reading of 74.1.

Also worth noting is the fact that the Fed will be selling more debt this week. These sales may influence broader bond trading enough to affect mortgage rates if they show strong or weak investor demand. There are sales every day except Friday but the two most likely to affect rates are Wednesday’s 5-year Note sale and Thursday’s 7-year Note auction. If they are met with a strong demand, we could see bond prices rise during afternoon trading. This could lead to afternoon improvements to mortgage rates also. But, if the sales draw a lackluster interest from investors, mortgage rates may move higher during afternoon trading those days.

Overall, Tuesday, Wednesday and Friday’s data should bring some volatility in trading and mortgage rates. It is difficult to label one particular day as the most important as none of them stand out as critical. In fact, any day that has a sizable move in stocks could help determine which day was the most active for mortgage rates.

The Complicated World of Credit Scores

Lenders use different credit scores for different purchases.

If you have successfully navigated a website that offers to sell you your credit score, you may think you have all the information you need in order to apply for a loan or new credit card.

Not necessarily. The score you received could be quite different from what a lender receives. Different scores are offered for mortgages, car loans, insurance and more.

Under the Fair Credit Reporting Act that took effect January 1, lenders must either tell those who apply for credit what score was used, or tell them how it was used if the applicant doesn’t receive the best terms available.

Here are some reasons why a credit score (a number between 300 and 850) still won’t tell you how a lender evaluates of you:

* Some lenders give the best rates to people with a score of 740, others may use 760 or higher. Some give credit to people with scores in the high 500s, but others require 620 or more.

* Credit scores don’t reflect whether you are making good financial decisions or poor ones.

If you refinance your home at a lower interest rate, inquiries could show up on your report. Inquiries lower a score.

* Late payments show up on your score for a couple of years, but paying down a high balance has an immediately beneficial impact.

* If you pay your credit card bill in full every month, you don’t get a zero balance on your credit report. The report shows the balance at the end of the billing period, before the payment.

* Rather than checking your score frequently, you are better off making sure the information on your report is correct. Make your payments on time and reduce monthly balances for a month or two before applying for a loan or mortgage.

This Week's Market Commentary

This week brings us the release of only three pieces of economic data that may affect mortgage rates, along with an FOMC meeting and Fed Chairman press conference. None of the economic data is of great concern, but the Fed events are a different story. Despite having only three economic reports of low or moderate importance, we still will likely see plenty of movement in the markets and mortgage rates this week.

There is no relevant economic news scheduled for release tomorrow, but we will probably still have an active day due the Greek election results from today. It appears that the New Democracy Party has won the election, which is the party that is expected to keep the current bailout agreement in place. That should be well received in the stock markets tomorrow, possibly pressuring bonds if we see sizable stock gains. It is too early to tell how this will play out in our markets tomorrow, but the reaction in other global markets so far has been favorable for stocks.

May's Housing Starts will be posted early Tuesday morning. This data tracks construction starts of new home projects. It is the week's least important report and likely will not affect mortgage rates unless its results vary greatly from forecasts. It is expected to show that starts of new homes rose slightly last month, indicating minor strength in the housing sector. That is basically bad news for the bond market and mortgage rates because a weak housing sector makes a broader economic recovery less likely. However, this data is not important enough to cause a noticeable change in mortgage rates.

Wednesday's only event is the 12:30 PM adjournment of the FOMC meeting that began Tuesday. It is widely expected that Mr. Bernanke and company will not change key short-term interest rates at this meeting, but there is some hope in the market that we are getting closer to another move by the Fed such as QE3. If the statement gives any hint of change in their current forecasts when they expect to adjust key short-term interest rates or do something to spur economic growth, we could see a sizable change to mortgage rates Wednesday afternoon.

Also worth noting is that the FOMC meeting is ending earlier than the traditional 2:15 PM because it is one of the meetings that will be followed by a press conference hosted by Fed Chairman Bernanke. The meeting will adjourn at 12:30 PM while the press conference will begin at 2:15 PM and will probably lead to afternoon volatility in the markets and mortgage rates Wednesday.

Thursday has two pieces of data that we need to watch, both coming at 10:00 AM ET. The first is May's Existing Home Sales report from the National Association of Realtors. This report tracks resales of existing homes, giving us a measurement of housing sector strength. It is considered to be moderately important to the markets, but can influence mortgage rates if it shows a sizable difference between forecasts and actual results. Analysts are currently expecting to see a decline in sales, pointing towards a weakening housing sector. That would be good news for the bond market and mortgage rates since a weaker housing sector makes overall economic growth more difficult.

May's Leading Economic Indicators (LEI) will also be posted at 10:00 AM Thursday. The Conference Board, who is a New York-based business research group, will post this data. It attempts to predict economic activity over the next three to six months. Good news for mortgage rates would be a decline in this index, but it is expected to show no change from April’s reading, meaning it is predicting little economic growth over the next several months.

Overall, Friday will likely be the quietest day of the week unless the stock markets stage a rally or sizable sell-off. The most active should be Wednesday with the FOMC meeting adjourning or tomorrow due to this weekend’s Greek elections. It is likely going to be another active week for the markets and mortgage rates, so please proceed cautiously if still floating an interest rate. 

Loan Pre-Approval and Turning Yourself Into a “Cash Buyer”

Being pre-approved for a loan puts you in a great position when buying a home. It puts you on equal footing with an all-cash buyer, in essence turning yourself into a cash buyer.

With a real pre-approval, the buyer is the next-best-thing to being a “cash buyer” because the seller can rest assured that the buyer will qualify for a loan.

A truly “all-cash buyer” does not have to worry about lender approvals, but will typically still be concerned with a property appraisal and an acceptable title report.

Being pre-approved for a loan puts a buyer in a better position with the seller of the property. It allows the buyer to understand the costs associated with the purchase as well as the monthly costs associated with the ongoing ownership.

The Pre-Approval Process

The pre-approval process simply means that a buyer is getting approved for a loan prior to reaching an agreement with a seller of a property. The buyer will provide the lender with current income, asset and credit documents and the lender will determine the loan amount for which the buyer will be able to borrower.

The pre-approval process can take anywhere from 2 – 30 days, depending on the variables surrounding the possible transaction (credit worthiness, location of assets, calculation of income, etc).

Once a loan amount and purchase price have been determined by the lender, the final approval will usually be subject to an acceptable purchase contract, property appraisal, title report and final interest rates.

While it will vary from borrower to borrower based in the individual characteristics, a lender will typically be able to pre-approve a buyer within 5 days of receiving all of the applicable income, asset and credit documents.

This Week's Market Commentary

This week is pretty busy with five economic reports scheduled to be released, all of which are being posted over three days. Three of the five are considered to be of high importance to the markets and mortgage rates. The rest are of interest to the markets but likely will not cause a large change in mortgage rates unless they vary greatly from forecasts. In addition to the economic data, we also have two Treasury auctions that have the potential to influence bond trading and mortgage rates.

None of the relevant data is being posted tomorrow or Tuesday, so look for the stock markets to influence bond trading and mortgage rates again. Of particular interest will be this weekend’s news that Spain’s banks are receiving a significant cash infusion to at least temporarily ease the crisis there. This will likely fuel a stock rally tomorrow that should pressure bonds and mortgage rates. On top of that, weakness late Friday has us going into the new week with a small upward revision built into Monday’s morning rates.

The first data of the week comes Wednesday when two of the highly important reports are scheduled. May's Retail Sales data and Producer Price Index (PPI) will both be released at 8:30 AM ET Wednesday morning. The sales data gives us a very important measure of consumer spending, which is highly relevant to the bond market because consumer spending makes up over two-thirds of the U.S. economy. Analysts are expecting to see that retail-level sales fell 0.2% last month. A larger decline in sales, signaling a slowing economy, would be good news for the bond market and could lead to lower mortgage rates Wednesday.

The second release of the day is one of the week's two key measurements of inflation. May's Producer Price Index (PPI) will help us measure inflationary pressures at the producer level of the economy. There are two readings of this index, the overall and the core data. The core data is considered to be the more important one because it excludes more volatile food and energy prices. A large increase could raise concerns about inflation rising as soon as the economy gains some traction. This would not be good news for bond prices or mortgage rates since inflation erodes the value of a bond's future fixed interest payments. Rising inflation causes investors to sell bonds, driving prices lower, pushing their yields upward and mortgage rates higher. Analysts are expecting to see a decline of 0.7% in the overall index and a 0.2% rise in the core data.

The two relevant Treasury auctions scheduled will also be held the middle part of the week. A 10-year Treasury Note sale is scheduled for Wednesday while 30-year Bonds will be sold Thursday. Results of both auctions will be posted at 1:00 PM ET on the sale days. If investor demand was high, we may see bonds rally during afternoon trading, however, weak demand could lead to selling and an increase to mortgage rates. It is common to see some pressure in bonds right before these sales as investors prepare for them, but as long as the sales are not weak those pre-auction losses are usually recovered once they are completed.

Thursday has one of the week's most important and arguably one of the single most important reports the bond market gets each month. That is May's Consumer Price Index (CPI). It is very similar to Wednesday's PPI, but measures inflationary pressures at the more important consumer level of the economy. It is expected to show a 0.2% decline in the overall reading and a 0.1% increase in the core data. A larger than expected increase in the core reading would most likely lead to a noticeable upward change to mortgage rates Thursday, while a weaker core reading could lead to a bond rally and lower mortgage pricing.

Friday closes the week with two relevant reports, the first coming mid-morning when May's Industrial Production data is released. This report will be released at 9:15 AM ET and is considered to be moderately important. It measures output at U.S. factories, mines and utilities, giving us a fairly important measurement of manufacturing sector strength. If it reveals that production is rising, concerns of manufacturing strength may come into play in the bond market. A larger increase then the expected 0.1% would indicate that the manufacturing sector is stronger than thought and would likely help push mortgage rates slightly higher.

June's preliminary reading to the University of Michigan's Index of Consumer Sentiment will be posted late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. It is expected to show a reading of 77.0, which would be a decline from May’s 79.3. A smaller than expected reading would be considered good news for bonds because it would mean that surveyed consumers were less optimistic about their own financial situations than thought. That often means they are less likely to make large purchases in the near future, but since this report is only moderately important it likely will not influence mortgage rates considerably.

Overall, look for Wednesday or Thursday to be the biggest day of the week. Not just because it brings the release of three of the week's five reports, but also because of the importance of some of those releases. We saw plenty of movement in the markets and mortgage pricing last week and it is quite likely that this week will be similar. The stock markets will also influence bond trading and mortgage rates, so watch the major indexes in addition to the economic reports. It is highly recommended that you maintain contact with your mortgage professional this week if still floating an interest rate. 

Understanding Your Credit Score

Your credit score is one of the biggest determining factors in your ability to get a quality loan, and it is far more complex than just a three-digit number.

Yahoo! Personal Finance recently wrote an in-depth piece about understanding the intricacies of your credit score and what it means.

According to the article, “consumer research conducted by the Consumer Federation of America and VantageScore Solutions shows that many Americans don’t really understand their credit scores.”

The lower your credit score, the higher interest you will pay on loans and any line of credit. Understanding the basics of credit scores can help you achieve your goals, including home ownership.

Click here to view the article and learn more about credit scores.

This Week's Market Commentary

This week is relatively light in terms of scheduled economic reports that are relevant to mortgage pricing. None of the factual economic reports are considered to be highly important to the financial markets or mortgage pricing. The data that is on the agenda is considered to be moderately important, but Wednesday afternoon and Thursday morning have events scheduled that could be the biggest factor in whether mortgage rates move higher or lower this week.

The first release of the week will come from the Commerce Department, who will post April's Factory Orders data late tomorrow morning. This manufacturing sector report is similar to last week's Durable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn't expected to cause much of a change in rates. Current forecasts are calling for an increase in new orders of 0.2%.

There is nothing of relevance scheduled for release Tuesday, but Wednesday has two events that we will watch. The first is the revised 1st Quarter Productivity and Costs data at 8:30 AM ET. This data measures employee output and employer costs for wages and benefits. It is considered to be a measurement of wage inflation. This is relevant because it is believed that the economy can grow with low inflationary pressures when productivity is high. Economic growth isn’t much of a concern to the bond market at the moment, but if productivity is at a high level when the economy does turn the corner, inflation may not be as much of a topic as it would be without strong productivity levels. Last month's preliminary reading revealed a 0.5% decline and analysts are expecting to see a 0.7% decline, but I don't think this piece of data will have much of an impact on the bond market or mortgage pricing unless it varies greatly from that reading.

Wednesday afternoon has the Federal Reserve’s release of their Beige Book. This data details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could see mortgage rates revise higher Wednesday afternoon.

Thursday has no important economic data scheduled, but Fed Chairman Bernanke will speak before a Congressional Joint Economic Committee about his outlook for the economy. His words are always the focus of attention and can be highly influential on the markets and mortgage rates. It will be interesting to see exactly what he says and how much his outlook has changed in the recent weeks, especially after Friday’s disappointing Employment report. He is scheduled to testify at 10:00 AM ET, so we could see many lenders post rates later than usual to allow the markets to react to his prepared speech and the Q&A that follows. I think this event is more likely to benefit mortgage shoppers than lead to a spike in rates, but it is the week’s most important event so I recommend proceeding cautiously into it if still floating an interest rate.

April's Goods and Services Trade Balance report will close the week’s economic reports early Friday morning. This data gives us the size of the U.S. trade deficit and will be released at 8:30 AM ET. It isn't likely to cause much movement in the markets or mortgage rates, but nevertheless forecasters are expecting to see a $49.9 billion trade deficit. It will take a wide variance from this projection for the data to influence mortgage rates.

Overall, it likely is going to be a moderately busy week for the mortgage market. The most action will likely come during the middle days, assuming that the stock markets don't go into heavy selling or rally. Friday’s employment data helped fuel large stock losses and pushed bond yields to new record lows. The loss puts the Dow just a little more than 100 points away from breaking below an extremely important benchmark of 12,000. If stocks recover a good part of last week’s losses, we can expect bond prices to suffer and mortgage rates to rise. On the other hand, further stock weakness could lead to more funds moving into bonds and another round of improvements to mortgage rates.

As referenced last week, I believe the major indexes still have plenty of room to fall, which traditionally makes bonds more attractive as investors seek a safe-haven to place funds and escape the volatility. However, we should note that the 10-year Treasury is currently at a historic low yield of 1.47%. Even lower than when the financial crisis was at its peak. My concern is that I am not sure just how much lower we can see yields fall before investor appeal wanes, raising concerns about inflationary risks in the future. We are in unchartered waters with mortgage rates so low, stocks still relatively overpriced, overseas concern rising again and bond yields at record lows. It is going to be interesting to see what happens over the summer. At some point in the near future we will need to shift to a conservative approach towards mortgage rates, but for the time being, enjoy the improvements.