This Week's Market Commentary

This week has four pieces of economic data that are relevant to mortgage rates in addition to two Treasury auctions that can also be influential. None of the relevant data is scheduled until Thursday, so look for the stock markets to influence bond trading and mortgage rates the first couple of days. We are going into the week with an increase in rates due to weakness in bonds late Friday.

The two relevant Treasury auctions will be held Wednesday and Thursday. 10-year Treasury Notes will be sold 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 for the securities 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.

The first data of the week comes Thursday when the Commerce Department posts May’s Retail Sales data at 8:30 AM ET. This report gives us a very important measurement 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 rose 0.3% last month. A decline in sales, signaling a slowing economy, would be negative for stocks, good news for the bond market and could lead to lower mortgage rates Thursday morning. On the other hand, a stronger level of sales will likely equate to an increase in rates.

Friday has the remaining three pieces of economic data that we will be watching. The first of those is one of the two key measurements of inflation that we get each month. May's Producer Price Index (PPI) will be released early Friday morning, helping 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 bond prices lower, pushing their yields upward and bringing mortgage rates higher. Analysts are expecting to see increases of 0.1% in both readings, signaling inflation was subdued at the manufacturing level of the economy last month.

May's Industrial Production data will be released at 9:15 AM ET Friday 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 rapidly rising, concerns of manufacturing strength may come into play in the bond market. A larger increase than the expected 0.1% would indicate the manufacturing sector is stronger than thought and would likely 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 83.0, which would be a decline from May's 84.5. 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 unless it shows a significant variance from forecasts.

Overall, look for Thursday or Friday to be the biggest day of the week with both having important economic data scheduled. The least important day of the week will probably be Tuesday. We saw plenty of movement in the markets and mortgage pricing again last week and it is quite likely that this week will also be active. However, I suspect that it will be to a less degree than last week was. The stock markets will also influence bond trading and mortgage rates, so watch the major indexes in addition to the economic reports.

This Week's Market Commentary

There are six economic reports scheduled for release this week that have the potential to affect mortgage rates. We have monthly reports set for every day except Thursday with a couple of those reports considered to be highly important. Therefore, I believe it will be another active week for mortgage rates.

The Institute for Supply Management's (ISM) manufacturing index will be posted late Monday morning. This highly important index measures manufacturer sentiment. One reason why it is considered so important is the fact that it is the first piece of economic data posted every month that covers the preceding month. In other words, it is the first look into the previous month’s economic conditions. That differs from many reports that aren’t released until mid or late month. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. Analysts are expecting to see a 50.9 reading in this month's release, meaning that sentiment rose slightly during May. A smaller reading will be good news for the bond market and mortgage shoppers while an unexpected increase could contribute to higher mortgage rates tomorrow.

Tuesday’s only data is April's Goods and Services Trade Balance report. It 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 $41.1 billion trade deficit. It will take a wide variance from this projection for the data to influence mortgage rates.

The revised 1st Quarter Productivity and Costs data is the first of three reports that will be released Wednesday. This data measures employee output and employer costs for wages and benefits. It is considered to be a measurement of wage inflation. It is believed that the economy can grow with low inflationary pressures when productivity is high. Last month's preliminary reading revealed a 0.7% increase in productivity and a 0.5% increase in labor costs. Wednesday’s update is predicted to show 0.6% increases in both readings. I don't think this piece of data will have much of an impact on the bond market or mortgage pricing either unless it varies greatly from expectations.

The second release of the day will come from the Commerce Department, who will post April's Factory Orders data during late morning trading. 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 this month. Current forecasts are calling for an increase in orders of 1.5%.

Wednesday’s final relevant report is the Federal Reserve's Beige Book, which is named simply after the color of its cover. This report 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 doesn’t have any monthly or quarterly economic data for us to be concerned with, but there are a couple of foreign central bank announcements that are similar to our FOMC meetings. The Bank of England (BOE) and the European Central Bank (ECB) will both make monetary policy announcements before our markets open Thursday morning. The world markets, including ours, will be watching for any changes or updates about economic and financial conditions in their respective regions. Of particular interest will be the ECB announcement that is more likely to disrupt the global markets. It is difficult to predict not only what will be said but also what kind of reaction we can expect. We simply will have to wait and see what happens. They could be a non-factor or cause global volatility, so they are on my calendar.

Friday's sole report is arguably the single most important report that we see each month. The Labor Department will post May's Employment data early Friday morning. This report gives us key employment readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate remain unchanged at 7.5% with approximately 164,000 jobs added to the economy during the month. A higher than expected unemployment rate and a much smaller number than the 164,000 new payrolls would be great news for the bond market. It would probably create a sizable rally in bonds, leading to lower mortgage rates Friday. However, stronger than expected numbers may lead to another spike in mortgage rates.

Overall, it appears that Friday is the key day of the week with regards to mortgage rate movement. However, Monday or Wednesday could also be active days for mortgage pricing. Tuesday will probably be the lightest day unless something totally unexpected happens with stocks. Although, as we have seen many times over the past couple weeks, we don’t have to have an event or economic report released for the bond market and mortgage rates to become volatile. 

This Week's Market Commentary

This holiday-shortened week brings us the release of four relevant economic reports for the markets to digest in addition to Treasury auctions that have the potential to influence bond trading and mortgage rates. None of the reports are considered to be key data, but all of them do carry enough significance to affect mortgage rates if their results show any surprises. The financial and mortgage markets were closed yesterday in observance of the Memorial Day holiday and reopened for regular trading this morning.

The Conference Board will start the week's events by posting their Consumer Confidence Index (CCI) at 10:00 AM Tuesday. This data measures consumer willingness to spend. If the index rises, it indicates that consumers felt better about their personal financial situations and therefore are more apt to make large purchases in the near future. If confidence is sliding, analysts think consumer spending may slow in the near future. The latter is good news for the bond market because consumer spending makes up over two-thirds of the U.S. economy. A decline in the index should boost bond prices and push mortgage rates lower Tuesday morning while a larger than expected increase would likely cause rates to move higher. It is expected to show a reading of 72.5, up from April's 68.1 reading.

Wednesday has nothing scheduled that is expected to affect mortgage rates except the first of this week’s two Treasury auctions that are worth watching. The Fed will auction 5-year Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. On the other hand, strong sales usually make bonds more attractive to investors that brings more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during afternoon hours Wednesday and Thursday.

The next report will be Thursday's release of the first of two revisions to the 1st quarter Gross Domestic Product (GDP) at 8:30 AM ET. The second revision to this index comes next month but isn't expected to carry much importance. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth. Last month's preliminary reading revealed a 2.5% increase in the annual rate of growth. Analysts expect no change in this update. If the revision comes in much stronger than expected, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter. On the other hand, a much weaker reading could lead to stock selling, a bond rally and lower mortgage rates.

Friday has the remaining two pieces of data. April's Personal Income and Outlays data is the first at 8:30 AM ET. It gives us an indication of consumer ability to spend and current spending habits. An increase in income means that consumers have more money available to spend. As we pointed out above, since consumer spending makes up over two-thirds of our economy, this data can cause movement in the financial markets and mortgage rates. Current forecasts are showing a 0.1% increase in income and a 0.1% rise in spending. Weaker readings would be considered good news for bonds and mortgage rates.

The last relevant data of the week will come from the University of Michigan, who will update their Index of Consumer Sentiment for May late Friday morning. This type of data is watched closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Rising confidence and the higher levels of spending that usually follow are considered negative news for bonds and mortgage rates. Friday's report is expected to show no change from this month's preliminary reading of 83.7. A higher reading would be considered negative for bonds and mortgage pricing.

Overall, it is difficult to label any particular day as the week’s most important. The most important data is Tuesday’s or Friday’s releases, assuming that Thursday’s GDP reading does not show a sizable revision. With two relatively important reports scheduled for Friday, I am leaning towards it as likely to be the most active, but Tuesday could also bring noticeable changes to rates after the long holiday. The least active day will probably be Wednesday unless the stock markets rally or show sizable losses. Please keep in mind though, as we saw several days the past couple weeks, we don’t have to have important data for the markets and mortgage pricing to move considerably

This week's Market Commentary

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 Monday 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 Monday 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. 

This Week's Market Commentary

This week has little scheduled that is expected to drive bond trading and mortgage rates. There are no relevant monthly or quarterly economic reports on the calendar. In fact, the only economic news even worth watching is the weekly unemployment update from the Labor Department that usually draws little attention. We do, however, have two Treasury auctions that can potentially affect rates the middle part of the week.

Friday’s Employment report led to a significant sell-off in bonds and a large spike in mortgage rates. With nothing scheduled to help bond traders forget about Friday’s selling, the negative tone in stocks could carry into Monday’s trading. This is especially true if stocks open the week in positive ground. In other words, we could be in for further increases to mortgage rates the next day or two.

The Treasury will hold a 10-year Note sale Wednesday and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sale, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons. After Friday’s selling, it is difficult to portray a scenario that gives us high hope for these auctions. At best, I believe we will be fortunate if they are a non-factor towards mortgage rates.

 The week closes with a speaking engagement from Fed Chairman Bernanke mid-morning Friday. He will be speaking at a Fed banking conference in Chicago. Since this is the first time he will be public since last Friday’s employment news and the reaction the markets had, look for his words to cause a little volatility in the broader markets, and possibly mortgage rates.

Due to the lack of factual economic data to drive the markets this week, we should see bond trading and mortgage pricing to be heavily influenced by stock market direction. If the major stock indexes move higher, mortgage rates will probably follow suit. Ideally, mortgage shoppers should hope for stock market weakness as it would be the best scenario for mortgage rates to take back some of Friday’s increases.

Overall, I think we will see Monday be a fairly active day as Friday’s stock and bond market sentiment will probably carry into Monday’s trading. That will likely mean we start off the week with an increase in mortgage rates, but to a much smaller scale as last Friday’s move. Wednesday’s 10-year Treasury Note auction could also cause movement in rates during afternoon hours. However, any of this week’s moves will most likely be much smaller than some of last week’s changes were, comparatively speaking. With little to be optimistic about and the negative tone in bonds that will probably continue at least during the first day or so of trading this week, it is difficult to justify floating an interest rate if closing soon. Therefore, I strongly recommend maintaining contact with your mortgage professional if you have not locked an interest rate yet.

This Week's Market Commentary

This week has five pieces of economic data for the markets to digest in addition to two potentially relevant Treasury auctions. The week’s data starts late Monday morning with the release of March's Existing Homes Sales numbers from the National Association of Realtors at 10:00 AM ET. This report gives us an indication of housing sector strength and mortgage credit demand. It is considered to be moderately important to the markets, but can influence mortgage pricing if it shows a sizable variance from forecasts. Ideally, the bond market would like to see a drop in home resales because a soft housing sector makes a broader economic recovery difficult. Analysts are expecting to see a small increase in sales between February and March. The larger the increase, the worse the news it is for bonds and mortgage rates.

The sister report to Monday's housing data is March's New Home Sales. It will be released late Tuesday morning, but tracks a much smaller portion of all home sales as Monday’s report does. It also gives us an indication of housing sector strength and future mortgage credit demand, however, it is the week's least important report. Unless it varies greatly from analysts' forecasts, I am not expecting the data to cause much movement in mortgage rates. Analysts are currently forecasting an increase in sales of newly constructed homes.

Wednesday morning's data is March's Durable Goods Orders that will be released at 8:30 AM ET. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. These are products that are expected to last three or more years, such as appliances and electronics. Current forecasts are calling for a decline in new orders of 3.1%. This would be a sign of manufacturing sector contraction, but this data can be quite volatile from month-to-month. Therefore, a small variance between forecasts and the actual results will not heavily influence the markets or mortgage rates. A much larger decline would be considered good news for bonds and mortgage pricing, while a large increase would indicate manufacturing sector strength. A sign of solid manufacturing growth could lead to higher mortgage rates Wednesday.

In addition to this week's economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. On the other hand, strong sales usually make bonds more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during afternoon hours.

Friday has the two remaining reports, one of which is highly important to the financial and mortgage markets. That would be the preliminary version of the 1st Quarter Gross Domestic Product (GDP). This is arguably the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measure of economic growth or contraction. I expect this report to cause sizable movement in the financial markets Friday and therefore the mortgage market also. Analysts are expecting it to show that the economy grew at an annual rate of 2.9%, which would be a much quicker pace than the final quarter of last year. A smaller increase would be considered good news for mortgage rates. But, a stronger than expected reading would almost certainly cause stock prices to rise and bond prices to fall, leading to higher mortgage rates Friday morning.

The last piece of a data is the University of Michigan's update to their Index of Consumer Sentiment for April. This report gives us an indication of consumer sentiment. I don't expect it to have a significant impact on bonds and mortgage pricing unless it varies greatly from forecasts, especially since it comes after the GDP reading. Current forecasts are calling for little change from the preliminary reading of 72.3. This means that surveyed consumers were just as optimistic about their own financial situations as they were earlier this month. This data is relevant because rising sentiment means consumers are more apt to make a large purchase in the near future, fueling economic growth.

Overall, look for a fair amount of movement in the financial markets and mortgage rates this week. Friday is the most important day due to the GDP, but we should see movement in rates several days, particularly days that stocks are active. Tuesday appears to be the best candidate for the quietest day for mortgage rates. If this week's reports reveal weaker than expected economic conditions, the bond market could extend its recent rally and mortgage rates should fall for the week. However, I recommend taking a cautious approach towards rates if still floating an interest rate and closing in the near future.

Mortgage News Round-Up

It’s been another week of waiting to see if mortgage rates would rise, but so far, they’re holding steady. And refinance applications are on the rise again.  If you’re still thinking of refinancing but haven’t yet, now might be a good time to talk with me. I diligently track market trends and financial offerings to find you the best deal.

Fed’s Duke Sees Credit Easing Except in Mortgage Market

Bloomberg is reporting that Federal Reserve Governor Elizabeth Duke feels that the economy is strengthening.

“The economy does seem to be strengthening — particularly the housing market seems to be recovering at this point,” Duke said today at a Washington conference hosted by the American Bankers Association. “House prices are going up” though “a lot of that has to do with a shortage of houses on the market.”

Duke said “credit issues seem to be receding, and banks’ credit portfolios seem to be getting stronger and stronger and the delinquency ratios, non-performing asset levels seem to all be going down. So things seem to be going in the right direction there.”

The weak credit conditions of the past are improving in every sector except the mortgage market.

Duke’s comments come amid a sustained push by the central bank to spur the expansion and reduce unemployment. The Federal Open Market Committee in March reiterated its plan to buy $85 billion in bonds every month until the labor market outlook improves “substantially.” It also pledged to keep interest rates near zero as long as unemployment remains above 6.5 percent and the outlook for inflation is less than 2.5 percent.

The increase in mortgage interest rates would indicate an economic recovery. Since the other sectors are showing improvement, the expectation is that mortgage rates will start to rise soon. Big banks are already looking into cutting provisions for bad loans because the number of loans faulted on have decreased tremendously.

Alternative Ways to Pay Your Mortgage

Do you live near a major event like Coachella? A major art center or museum like the Sacramento Train Museum? Or a major sports team like the Seattle Mariners? Or a major vacation spot like San Francisco?

You could rent out your home for the weekend like Mark Magnum and his wife do. They live in Texas and during football season, they rent out their home for $1600 for the weekend.  Their current mortgage is $1300/month, and they spend the weekends with the in-laws.  He pays 20% to a management company who handles all of the booking and payments.

Things to be aware of:

• Zoning laws – Need to find out if you need a license or if it violates any zoning ordinances
• Tax laws – need to be certain you can still call it your primary residence
• Loan requirements – like the tax laws

Another way to defray the cost of your mortgage is to take on a boarder. If you do this, make sure you have a solid contract as to what the renter can and cannot do. Also, ensure you do a thorough background check, and get a substantial deposit.

Would you ever rent out your home?

This Week's Market Commentary

This week brings us the release of five economic reports that have the potential to affect mortgage rates. There is nothing of importance on the economic front scheduled for tomorrow, so look for stock trading to have the biggest influence on bond trading and mortgage pricing. We do have round two of earnings releases that can significantly impact the stock markets and help direct funds into or away from mortgage-related bonds. Strong earnings reports should fuel a stock rally that pressures bonds and leads to higher mortgage rates. On the other hand, disappointing earnings news should make bonds more attractive and lead to rate improvements, particularly on days that we don’t get any economic data.

March's Consumer Price Index (CPI) is the first report of the week at 8:30 AM ET Tuesday. This index is one of the most important pieces of data we see each month. It is similar to last week's PPI but measures inflationary pressures at the consumer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors, leading to bond selling and higher mortgage rates. There are two readings in the index that traders watch- the overall and the core data that excludes more volatile food and energy prices. Analysts are expecting to see a 0.1%decline in the overall readings and a 0.2% rise in the core reading. The core data is the more important reading, which ideally will show a decline in prices at the consumer level.

March's Housing Starts is the next report, also coming early Tuesday morning. It gives us a measurement of housing sector strength and mortgage credit demand by tracking starts of new home construction and the number of permits issued for future starts. This data usually doesn't cause much movement in mortgage pricing unless it varies greatly from forecasts. It is expected to show a small increase in construction starts of new homes. Good news for the bond market and mortgage rates would be a decline in home starts, indicating housing sector weakness.

The third report of the day is March’s Industrial Production data that will be posted at 9:15 AM ET. It tracks output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for an increase in production of 0.3%. This data is considered to be only moderately important to rates, so it will take more than just a slight variance to influence bond trading and mortgage pricing. Signs of manufacturing sector strength are considered negative news for mortgage rates, so a decline in output would be good news for the bond market and mortgage shoppers.

Wednesday’s only news is the Federal Reserve’s Fed Beige Book report at 2:00 PM ET. This report is named simply after the color of its cover but details economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be considered favorable.

The final report of the week will be posted late Thursday morning when the Conference Board releases their Leading Economic Indicators (LEI) for March. This data attempts to measure economic activity over the next three to six months. This is considered to be a moderately important report, so we may see a slight movement in rates as a result of this data. It is expected to show no change from February’s reading, meaning it is predicting little growth in economic activity over the next several months. A decline would be considered good news for the bond market and could lead to slightly lower mortgage rates.

Overall, it will likely be a moderately active week for mortgage rates. However, unlike many weeks, the most important news comes earlier in the week. I am labeling Tuesday the most important data and Friday appears to be the best candidate for the least active day, but tomorrow may also be fairly quiet. The stock markets could also heavily influence bond trading and mortgage pricing any day this week as we get more corporate earnings releases. I don’t think this will be one of the more active weeks in terms of mortgage rates movement, although we should see minor changes a couple days.

The Current State of the Housing Market

The housing market is making a recovery in all states, and some are doing better than others. Rates were low to help spur everyone from investors to consumers to borrow and spend more. The Mortgage Bankers Association noted that in 2012, refinances made up 71% of all mortgage originations. So the low rates have been great for existing homeowners but not so great for new homeowners.

That may change over the next year.

The Hot Hot Hot Markets

Bidding wars are back in some of the nation’s major housing markets including San Francisco and Sacramento metro areas. One home in Elk Grove received 62 separate bids, and the final sale price was well above the asking price.

Buyers are eager to purchase before home prices really start to increase, and before mortgage rates rise.

In addition, there are homeowners who were hoping for a profit, but now just want to sell for what they purchased and move to a more affordable residence.

If you’re trying to buy in a hot housing market, a reputable Realtor will be able to help you put together a proposal that gets noticed.

Why So Hot?

In February, the National Association of Realtors reported a 19.2% decline in inventory year-over-year. Normally, you’d expect the number of homes for sale to rise in the Spring, but they’re forecasting lower inventory which will push prices higher.

New home construction is still moving forward slowly. After the housing bust, many contractors had to walk away from a number of developments. In addition, the cost to build the home is often more than what the property ended up selling for (per Jeff Culbertson, president of Coldwell Banker’s Southern California operations)

Still chilly

Zillow analyzed 260 metro areas of which 239 hit bottom and are climbing back out. Out of the 21 left, Zillow predicted 9 that won’t hit bottom before 2014. If you’re a home buyer, this means you still have time to buy into these areas. If you’re a current homeowner, it could take longer to get out from being underwater.

And here are the nine:

1. Hartford, Connecticut
2. Asheville, North Carolina
3. Pittsfield, Massachusetts
4. Wilmington, North Carolina
5. Stamford, Connecticut
6. Manchester, New Hampshire
7. Bremerton, Washington
8. New London, Connecticut
9. Salisbury, Maryland

So what does this all mean?

If you’re looking to buy a home for the first time, and you’re in a hot market, you need a strong Realtor who knows how to go to bat for you.  If you’re in a cooler market, you might still have difficulties finding homes to buy, but the prices will be great.

If you’re looking to sell, and you’re not in a cold area, be prepared for bidding wars.  Get your home looking move-in-ready, and you could possibly get far more then your asking price.  A strong Realtor will help you pick out the best offers.

Are you thinking of buying or selling this year?

This Week's Market Commentary

This week brings us the release of only three economic reports that are relevant to mortgage rates, in addition to a couple of Treasury auctions and the minutes from the last FOMC meeting that have the potential to be influential on the bond market and mortgage pricing. Corporate earnings season also kicks off this week, which could be instrumental in driving stock prices significantly higher or lower.

There is no relevant economic news scheduled for release Monday or Tuesday. The first events of the week will come Wednesday afternoon. One is the release of the minutes from the last FOMC meeting. Market participants will be looking at them closely as they give us insight to the Fed's current thought process and individual Fed member opinions. Any surprises in the 2:00 PM ET release, particularly about inflation or the likelihood of an adjustment to their current bond buying program, could cause afternoon volatility in the markets Wednesday and possible changes in mortgage pricing.

The two Treasury auctions are scheduled for Wednesday and Thursday. There is a 10-year Treasury Note sale Wednesday and a 30-year Bond sale Thursday. We could see some weakness in bonds ahead of the sales as participating firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing Wednesday and/or Thursday afternoon.

Friday has all of the week’s highly important economic data scheduled. The Labor Department will start the day by posting March's Producer Price Index (PPI) at 8:30 AM ET. It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond's future fixed interest payments, leading to higher mortgage rates. A good size decline in prices would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.1% decline in the overall reading and a 0.1% rise in the core data.

Also early Friday morning, the Commerce Department will release March's Retail Sales data. This piece of data gives us a measurement of consumer spending levels, which is very important because consumer spending makes up over two-thirds of the U.S. economy. Forecasts are calling for no change in sales from February to March. If we see an increase in spending, the bond market will likely fall and mortgage rates will rise as it would indicate consumers are spending more than thought, fueling economic growth. However, a weaker than expected reading could push bond prices higher and mortgage rates lower Friday, especially of the PPI gives is favorable results also.

The final release of the week is the University of Michigan's Index of Consumer Sentiment at 9:55 AM ET Friday. Their consumer sentiment index will give us an indication of consumer confidence, which hints at consumers' willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial situations, they probably will delay making that large purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March's 78.6 reading. Current forecasts are calling for a reading of approximately 78.0.

Overall, look for the most movement in rates the latter part of the week, particularly Friday. The PPI and Retail reports are the biggest names on the agenda. Either of them can cause significant movement in the markets and mortgage rates. Look for the stock markets to also influence bond trading and mortgage rates the a good part of the week as traders react to the earnings news, but I believe we will see the most movement in rates the latter part. I am expecting it to be an active week for the mortgage market, so please maintain contact with your mortgage professional if still floating an interest rate.

This Week's Market Commentary

This week has five government-compiled economic reports for the markets to digest. Only one is considered to be highly important, but it is a big one. The rest of the reports are moderately important to the markets, meaning they have the potential to affect mortgage rates but usually don't cause a noticeable change. The most important data comes late in the week, but sizable moves in stocks can impact bond trading and mortgage rates any day.

The week's first data comes Wednesday with the release of January's Factory Orders during late morning hours, which will give us a measurement of manufacturing sector strength. This data is similar to last week's Durable Goods, except this report covers orders for both durable and non-durable goods. Current forecasts are calling for a drop in new orders of approximately 2.2%. A larger than expected drop would be good news for the bond market and could lead to an improvement in mortgage rates since it would point towards economic weakness.

The Fed Beige Book is the next report scheduled for release and it will be posted Wednesday afternoon. This report details economic activity throughout the country by Federal Reserve region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during afternoon trading Wednesday. It probably will not cause a major sell off in the stock or bond markets, but it is still worth watching it.

Wednesday also has a couple of private sector employment-related reports due to be posted. The biggest one comes from payroll processor ADP who will announce their change in payrolls processed last month. Since it is not a government agency report, it isn't considered to be highly important, but as with any employment-related data, it does draw some attention. This is especially true for this report because it is posted just a couple days before monthly employment figures are released by the Labor Department.

Thursday has two reports scheduled for release, but neither is considered to be highly important. The first is the revised Productivity index for the 4th Quarter of last year. The preliminary reading posted last month showed a decline of 2.0% in worker output. Analysts are expecting to see an upward revision of 0.4% to last month's initial reading. Employee productivity is watched fairly closely because a higher level of output per hour is believed to mean that the economy can expand without inflation concerns. However, since this data is quite aged now, it likely will have little impact on Thursday's mortgage rates unless it shows a significant change.

January's Goods and Services Trade Balance report will also be released at 8:30 AM ET Thursday morning, but it will likely draw little interest from market participants. It will give us the size of the U.S. trade deficit, which does not directly impact mortgage rates and is the week's least important piece of news. Current forecasts are calling for a $43.0 billion trade deficit during January, but we will need to see a large variance from this estimate and little surprise in the productivity figures for this news to influence bond trading enough to affect mortgage pricing. It is highly likely that this report will be a non-factor in Thursday’s pricing.

The biggest news of the week comes early Friday morning when one of the single most important monthly reports we see will be posted. The Labor Department will release February's Employment report at 8:30 AM ET Friday. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a much smaller increase in payrolls than expected and little or no increase in earnings. Current forecasts are calling for no change in the unemployment rate of 7.9% and approximately 165,000 new jobs added to the economy. Stronger than expected readings will likely fuel a stock market rally and selling in bonds that would cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers would raise concerns about the economy's ability to continue to grow that would have an opposite impact on the markets and mortgage pricing.

Overall, look for a fairly active week in the markets and mortgage rates, especially the middle and latter days. I suspect there will be some optimism leading up to Friday's Employment report, which could lead to support in stocks and pressure in bonds as we get closer to Friday. That day is undoubtedly the biggest of the week, but Wednesday’s events and some central bank news from overseas early Thursday morning could also heavily influence mortgage rates. It appears that either tomorrow or Tuesday will be the least important days. Please be careful this week if still floating an interest rate, especially the latter part of the week. 

This Week's Market Commentary

This week brings us the release of seven economic reports to be concerned with in addition to some very important testimony from Fed Chairman Bernanke and two potentially relevant Treasury auctions. One of the reports is considered to be very important, but nearly all of the week's releases have the potential to affect mortgage rates. There is nothing scheduled for release Monday, so we can expect to see the stock markets and talks of the upcoming automatic budget cuts drive bond trading and changes to mortgage rates until we get to the week’s major events Tuesday.

The first piece of data is January's New Home Sales report at 10:00 AM ET Tuesday morning. This is the least important report of the week, and is the sister report to last week's Existing Home Sales data. They measure housing sector strength and mortgage credit demand, but usually do not have a significant impact on bond trading or mortgage rates unless they show significant surprises. This report is expected to show an increase in sales, hinting at strength in the new home portion of the housing sector. Ideally, the bond market would prefer to see housing sector weakness because it makes a broader economic recovery more difficult.

Tuesday also brings us the release of February's Consumer Confidence Index (CCI) during late morning trading. This Conference Board index measures consumer confidence in their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling good about 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 economy, related data is considered important in terms of gauging economic activity. It is expected to show an increase in confidence from 58.6 in January to 62.0 this month. A lower reading would be considered good news for bonds and mortgage rates since it would indicate consumers are less likely to make a large purchase in the near future.

Fed Chairman Bernanke will deliver the Fed's semi-annual testimony on the status of the economy late Tuesday and Wednesday mornings. He will be speaking to the Senate Banking Committee Tuesday morning and the House Financial Services Committee Wednesday. Market participants will watch his words very closely. He is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what he says during this testimony. Look for him to address the unemployment and housing sectors along with our budget stalemate and their impact on the overall economy. His testimony begins at 10:00 AM ET with a prepared statement then is followed by Q & A with committee members. I am expecting to see the markets fluctuate greatly Tuesday morning, possibly affecting mortgage rates also. The first day of testimony almost always causes the most volatility because the prepared statement made by the Chairman on the second day usually differs little from that of the first day.

January's Durable Goods Orders data will be released early Wednesday morning. This report gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators and autos are examples of these big-ticket items. A larger decline than the 4.0% that is expected would be good news for the bond market and mortgage rates as it would point towards manufacturing sector weakness. This data is known to be quite volatile from month-to-month, so large swings are fairly normal. A small variance from forecasts would not cause much concern or joy in the markets.

The first of two revisions to the 4th Quarter GDP reading is scheduled for release Thursday morning. Analysts' forecasts currently call for an annual rate of growth of 0.5%, up from the initial estimate of a 0.1% decline that was posted last month. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market, while no change or a downward revision would be good news for bonds and could lead to improvements in mortgage pricing Thursday.

Friday has three economic reports scheduled. January's Personal Income and Outlays data will be released at 8:30 AM ET, which gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for a decline in income of 2.4% while spending is expected to rise 0.2%. The expected sizable decline in income is a result of the 2.6% spike we saw last month in December’s data that was attributed to Fiscal Cliff worries. Many large companies paid dividends and bonuses in December instead of January as they traditionally do in case the Fiscal Cliff issue did not get resolved. This allowed those payments to be taxed at the expected lower rates of 2012 instead of the 2013 rates that would have kicked in had there been no resolution. This means that we will see income fall sharply from December’s inflated level. Lower levels of income men consumers have less money to spend. And weaker levels of consumer spending helps limit overall economic growth, making long-term securities, such as mortgage-related bonds, more attractive to investors.

The University of Michigan's revision to their Index of Consumer Sentiment for February will be announced just before 10:00 AM ET Friday. Current forecasts show this index unchanged from its preliminary estimate of 76.3. This index is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but is not considered to be a major market mover. This means it will probably not have a significant impact on mortgage rates, especially with other important data being released Friday morning.

The Institute for Supply Management (ISM) will release their manufacturing index for February late Friday morning. This index measures manufacturer sentiment and can have a pretty large impact on the financial and mortgage markets if it varies from forecasts. It is expected to show a small decline from January's 53.1 to 52.4 this month. This is important because a reading above 50.0 means more surveyed manufacturers felt business improved during the month than those who felt it had worsened, meaning growth is likely in the manufacturing sector. If we see a weaker than expected reading, the bond market could rally. But, a higher than forecasted reading could lead to major selling in bonds, causing mortgage rates to rise Friday morning. One of the reasons this data is considered so important is the fact that it is usually the first monthly report posted that covers the preceding month. Its posting data is the first business day of the month, allowing for a current snapshot of economic conditions.

In addition to this week's economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes Tuesday and 7-year Notes on Wednesday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates.

Overall, I am expecting Tuesday to be the most important day with a couple of economic reports, the first relevant Treasury auction of the week and the first day of Chairman Bernanke’s testimony all scheduled. Friday’s data is considered highly important, so we may see a fair amount of movement in the markets and mortgage pricing that day also. We will also be watching progress on the automatic budget cuts that are scheduled to take effect Friday (March 1st) and the major stock indexes (Dow at 14,000) for direction of mortgage rates. There is little doubt that this will be an extremely active week in the markets and likely mortgage rates too. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.

This Week's Market Commentary

This week brings us the release of only three pieces of monthly economic data that is relevant to mortgage rates in addition to two Treasury auctions. One of the economic reports is considered highly important to the markets, but the others are not likely to be market movers. We still could see a fair amount of movement in mortgage rates though, especially if stocks make a sizable move upward or downward.

Nothing of concern is due Monday or Tuesday morning, leaving bond trading to be driven by the stock markets the first part of the week. If the major stock indexes move higher, we will probably see funds move away from bonds and into stocks. This would lead to higher mortgage rates as bond prices and yields move in opposite directions. Mortgage rates tend to follow bond yields, so we prefer to see bond prices go up, pushing rates lower.

The week's first release is one of the more important ones we get each month. The Commerce Department will post January's Retail Sales data early Wednesday morning. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched quite closely. If Wednesday's report reveals weaker than expected retail-level sales, the bond market should thrive and mortgage rates will fall since it would be a sign that the economy is not as strong as many had thought. However, a stronger reading than the 0.1% increase that is expected could lead to higher mortgage rates Wednesday.

January's Industrial Production data will be released mid-morning Friday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.2% increase in production from December to January. A decline in output would be good news and should push bond prices higher, lowering mortgage rates Friday.

February's preliminary reading to the University of Michigan's Index of Consumer Sentiment will be released late Friday morning. This index measures consumer willingness to spend and also usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 73.5, down slightly from January's final reading of 73.8. That would indicate consumers were a little less optimistic about their own financial situations than last month and are less likely to make large a purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered slightly favorable news for bonds and mortgage pricing.

The two important Treasury auctions come Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important of the two as it will give us an indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would likely result in upward afternoon revisions to mortgage rates.

Overall, I believe we will see the most movement in rates the middle part of the week. There is a small improvement waiting for Monday's open if your lender did not improve pricing Friday afternoon when the bond market strengthened during late trading. The Dow closed just under 14,000 Friday, so we will also be watching it for an indication of bond movement. I believe that failure to break above that level could mean a downward leg in stocks that would boost bond prices and improve mortgage rates. I see Wednesday as the likely candidate for the most important day and Tuesday being the least active, assuming stocks remain calm most of the week. However, despite it being a relatively light week in terms of economic releases, I still recommend maintaining contact with your mortgage professional of still floating an interest rate. 

This Week's Market Commentary

There are only three pieces of monthly economic data scheduled for release this week. None of them are considered to be highly important, so we don't have much to pin our hopes on or to be concerned with this week. This could help give the mortgage market a chance to breathe a little. While that would normally not be something to look forward to, it should be welcomed news following the beating mortgage rates have taken over the past couple weeks.

December's Factory Orders data is the first piece of data, scheduled to be posted at 10:00 AM ET tomorrow. It is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is not one of the more important reports we get each month, however, it can influence mortgage pricing if it varies greatly from forecasts. Analysts are expecting a 2.4% increase in new orders, indicating manufacturing sector strength. The bond market would like to see a much smaller increase, meaning that manufacturing activity was not as strong as many had thought.

Employee Productivity and Costs data for the 4th quarter will be released early Thursday morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing. If the productivity reading varies greatly from analysts' forecasts of a 1.2% decline, we may see some movement in mortgage rates. Higher levels of worker productivity is good news for the bond market because it allows the economy to expand while keeping inflation subdued. On the other hand, bond traders would prefer to see the labor costs reading decline to limit wage inflation concerns.

The third and final report of the week is December's Goods and Services Trade Balance data early Friday morning. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to affect mortgage rates. It is expected to show a $45.4 billion trade deficit.

Overall, I am expecting a much calmer week in the mortgage market than we have seen the past couple. With little economic data to drive bond trading, look for the stock markets to play a major role in bond movement and mortgage rate changes. If the major stock indexes extend their recent rally that closed the Dow above 14,000 Friday for the first time since Oct 2007, we could see bond prices fall and their yields move further above 2.00%. Since mortgage rates tend to follow bond yields, this would be bad news for mortgage shoppers. However, if stocks fall from current levels, we should see bond prices rise and mortgage rates move lower this week. 

This Week's Market Commentary

This week is packed with economic reports and other events that are relevant to bond trading and mortgage rates. There are eight pieces of monthly or quarterly economic data scheduled with at least one being posted each day. In addition to those reports, there is also a two-day FOMC meeting and a couple of Treasury auctions that have the potential to affect bond trading enough to slightly move rates.

The first report of the week is December's Durable Goods Orders at 8:30 AM ET Monday morning. This data helps us measure manufacturing strength by tracking new orders at U.S. factories for products that are expected to last three or more years, also known as big-ticket items. The data is known to be quite volatile from month- to-month, but is currently expected to show an increase in orders of approximately 1.6%. A smaller than expected increase would be considered good news for bonds and mortgage rates, but a slight variance likely will have little impact on the day's mortgage pricing.

Tuesday also has only one report scheduled for release that is relevant to mortgage rates. That would be January's Consumer Confidence Index (CCI) at 10:00 AM ET. This report is considered to be of moderate to high importance to the bond market and therefore can move mortgage rates if it shows any surprises. It is an indicator of consumer sentiment, which is important because waning confidence in their own financial situations usually means that consumers are less willing to make large purchases in the near future. Because consumer spending makes up over two-thirds of the U.S. economy, market participants are very attentive to related data. Analysts are expecting to see little change from December's reading, indicating consumer confidence was flat. A reading much smaller than the expected 65.1 would be ideal for the bond market and mortgage rates. A higher reading than forecasts would hint that consumers are more likely to spend in the immediate future, fueling economic growth and possibly pushing mortgage pricing higher Tuesday.

Wednesday brings us one of the most important economic reports we regularly see in addition to the FOMC meeting results. The 4th Quarter Gross Domestic Product (GDP) will be posted early Wednesday morning. This data is so important because it is considered to be the best measurement of economic activity. The GDP itself is the total sum of all goods and services produced in the United States. Its results usually have a major impact on the financial markets and can cause significant changes in mortgage rates. There are three readings to each quarter's activity, each released approximately one month apart. Last quarter’s first reading, which usually carries the most significance, is expected to be an increase of 1.0%. A noticeably weaker reading would be great news for the bond market, questioning the pace of the economic recovery. That would likely fuel stock selling and a rally in bonds that would push mortgage rates lower Wednesday morning. However, a stronger than expected reading should fuel bond selling and lead to higher mortgage rates.

This year's first FOMC meeting that begins Tuesday will adjourn Wednesday at 2:15 PM ET. It is expected to yield no change to short-term interest rates, but as is often the case, traders will be looking for any indication of the Fed's change in sentiment about the economy and when a potential change to short-term rates will be made or an adjustment to their current stimulus programs. There has been some rumors and talk of the Fed possibly ending or easing their bond buying programs earlier than previously thought. That is a topic that traders will be looking for in the post-meeting statement and could cause volatility in the markets during afternoon trading if it is addressed by Mr. Bernanke and friends.

Thursday morning is the first day of the week with multiple economic reports scheduled that are expected to influence mortgage rates. The first is December's Personal Income and Outlays data early Thursday morning, which gives us an indication of consumer ability to spend and current spending habits. As with Tuesday’s CCI, this report is important because it is related to consumer spending. Current forecasts call for an increase in income of 0.7% meaning consumers had more money to spend in December than they did on November. The spending reading is expected to rise 0.3%, indicating consumers spent a little more last month than the previous month. Larger increases would be good news for the stock markets and could hurt bond prices, driving mortgage rates higher. Smaller than expected increases would be considered good news for the bond market and mortgage rates.

The second release of the day will be the 4th Quarter Employment Cost Index (ECI). This index measures employer costs for employee wages and benefits, giving us an indication of the threat of wage inflation. If wages are rising, consumers have more money to spend and businesses usually need to charge more for their products and services. The report is considered moderately important and usually has more of an effect on the bond market than the stock markets. Current forecasts are showing an increase of 0.5%. A lower than expected reading would be favorable to bonds and mortgage rates Thursday, but unless we see a large variance from forecasts I am not expecting this report to cause much movement in rates.

And that leaves Friday. The week closes with the final three pieces of economic data on this week’s calendar, two of which are considered extremely important to the financial and mortgage markets. It begins with the release of the almighty monthly Employment report at 8:30 AM ET. The Labor Department will post January's Employment data, giving us the U.S. unemployment rate and the number of jobs added or lost during the month among other related statistics. Analysts are expecting to see the unemployment rate slip 0.1% to 7.7% and that approximately 183,000 new jobs were added to the economy. An increase in unemployment and a much smaller increase in payrolls would be great news for the bond market. It would probably create a bond rally, leading to lower mortgage rates Friday morning. However, if Friday's report reveals stronger than expected results, indicating a stronger than thought employment sector, we can expect to see stocks rally and mortgage rates move noticeably higher.

The second report of the day is the revised reading to the University of Michigan's Index of Consumer Sentiment just before 10:00 AM ET Friday. This index is another measurement of consumer confidence that is thought to indicate consumer willingness to spend. I don't see this data having much of an impact on the markets or mortgage rates due to the importance day’s other reports.

Friday's final report is also extremely important to the markets. It will be released at 10:00 AM when the Institute of Supply Management (ISM) posts their manufacturing index for January. This index tracks manufacturer sentiment by rating surveyed trade executives' opinions of business conditions. It is usually the first economic data released each month and is one of the very important reports we get each month. Current forecasts are calling for a reading in the neighborhood of 50.5, which would be a slight decline from December's reading. The lower the reading, the better the news for the bond market and mortgage rates because weak sentiment indicates a slowing manufacturing sector.

And if we didn't have enough to watch already, there are two relatively important Treasury auctions for the markets to digest. The Fed will auction 5-year and 7-year Treasury Notes Tuesday and Wednesday, respectively. If they are met with a strong demand from investors, the broader bond market may improve during afternoon hours those days. If the sales draw a lackluster interest, they could lead to bond selling and higher mortgage rates mid-afternoon Tuesday and Wednesday.

Overall, it is difficult to say exactly which day will probably have the most movement in mortgage rates, but Wednesday and Friday are certainly the best candidates. Wednesday has the GDP and FOMC meeting while Friday’s agenda includes two highly important releases in the Employment and ISM reports. Tomorrow, Tuesday and Thursday are all equally important for mortgage rates. Mondays are often calmer than other days many weeks. However, with last Friday’s bond selling extending into the close of trading, you have approximately a .250 of a discount point increase in rates waiting before tomorrow’s open if your lender did not revise pricing higher Friday afternoon. That, coupled with a fairly important manufacturing report being released means we can’t automatically label it as the least important day by default. There is little doubt that we will see plenty of volatility in the financial markets and mortgage rates the next five days, so I highly recommend maintaining contact with your mortgage professional if still floating an interest rate. 

This Week's Market Commentary

This week beings us the release of seven economic reports that are relevant to mortgage rates, with some of the data considered to be highly important to the financial and mortgage markets. There is nothing scheduled for release during trading hours Monday that may influence mortgage rates. However, Fed Chairman Bernanke will speak at the University of Michigan at 4:30 PM ET. The topic will be the economy and monetary policy, so there is a decent possibility of his words affecting the markets. But since the event is considered after-hours, we won’t be able to see whatever is said influence mortgage pricing until Tuesday morning.

The first economic reports of the week will be posted early Tuesday morning. The Commerce Department will release December's Retail Sales data at 8:30 AM ET. This Commerce Department report measures consumer spending by tracking sales at retail level establishments in the U.S. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely. Current forecasts are calling for an increase in sales of approximately 0.3%. A smaller than expected increase in sales would be good news for bonds and mortgage rates because it would hint at weaker than thought economic growth.

Tuesday’s second report is the Labor Department's Producer Price Index (PPI), also at 8:30 AM ET. The PPI is important to the markets and mortgage rates because it measures inflationary pressures at the producer level of the economy. Analysts are expecting to see no change in the overall reading and a 0.2% increase in the more important core reading that excludes volatile food and energy prices. A larger than expected increase in the core reading could mean higher mortgage rates Tuesday since inflation is the number one nemesis of the bond market. It erodes the value of a bond's future fixed interest payments, making them less attractive to investors. Accordingly, they are sold at a discount to offset the drop in value, which drives their yields higher. And since mortgage rates follow bond yields, rising inflation usually translates into higher interest rates for borrowers.

Wednesday also has multiple reports scheduled for release. The first and most important is December's Consumer Price Index (CPI) at 8:30 AM. This is one of the most important monthly reports that we see each month since it measures inflationary pressures at the consumer level of the economy. As with the PPI, there are two readings in the release. The overall index is expected to remain unchanged while the core data is expected to increase 0.1%. Weaker than expected readings would be favorable news and should lead to bond strength and lower mortgage rates Wednesday morning.

December's Industrial Production report is also on Wednesday's agenda with a release time of 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength or weakness. Current forecasts are calling for an increase in production of 0.2% from November's level. A weaker reading would be considered good news for bonds and could help lower mortgage rates, but the CPI is by far the more important data for the bond market and will have the biggest impact on that day's mortgage pricing.

Lastly for Wednesday, the Federal Reserve's Beige Book will be posted at 2:00 PM ET. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on it during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises, particularly regarding inflation, unemployment or future hiring. Any reaction to the report though will come during afternoon trading.

Thursday’s sole monthly data is December’s Housing Starts at 8:30 AM. It helps us measure housing sector strength and future mortgage credit demand by tracking construction starts of new homes. It is not considered to be one of the more important releases each month, so I don't see it causing much movement in mortgage rates Thursday but does carry the potential to affect trading and rates if it shows a significant surprise.

The final report of the week is January's preliminary reading to the University of Michigan's Index of Consumer Sentiment. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to slightly change mortgage rates. If consumers feel better about their own financial situations, they are more apt to make a large purchase in the near future, fueling economic activity. Good news would be a reading weaker than the 75.0 that is expected.

Overall, Tuesday or Wednesday will probably be the most active day for mortgage rates with some key economic data being posted both days. The least active day will probably be Monday, but Thursday also has little to be too concerned with. But the stock markets can be a big influence on bond trading and mortgage pricing any day, so maintaining contact with your mortgage professional this week is highly recommended if still floating an interest rate.