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.