This Week’s Market Commentary

February 21, 2012

This week brings us the release of only three pieces of economic data for the bond market to digest along with two potentially influential Treasury auctions. The financial markets will be closed tomorrow in observance of the President’s Day holiday, so don’t expect to see new mortgage pricing until Tuesday morning. Due to the holiday, we will not be updating our report tomorrow.

The National Association of Realtors will post January’s Existing Home Sales report late Wednesday morning. It tracks home resales throughout the country, giving us a measurement of housing sector strength. It is expected to show a small increase in sales of existing homes, meaning the housing sector remained strengthened during the month. Ideally, the bond market would like to see a sizable decline in sales because weak housing is one of the hurdles that the economy must overcome to recover from the recession.

The longer it takes for the housing market to recover, the longer it will take the economy to do the same.

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. 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.

Friday has two reports, the first being the University of Michigan’s revision to their Index of Consumer Sentiment for February. Current forecasts show this index rising a little from its preliminary estimate of 72.5. 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.

The last piece of data scheduled for release this week is January’s New Home Sales report at 10:00 AM ET Friday morning. This is the least important report of the week, and is the sister report to Wednesday’s Existing Home Sales. 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 also expected to show an increase in sales.

Overall, this week is lighter than last week in terms of economic releases. Therefore, it would not be surprising to see a fairly calm week in mortgage rates, or at least less movement than last week. However, news from overseas and stock movement could also heavily influence trading and mortgage rates. I think we will see the most movement either Wednesday or Friday, buy any day could turn active if stocks rally or sink.
Despite the relatively light calendar this week, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate.