The Weekly Mortgage Market Commentary

June 26th, 2017

This week brings us the release of five economic reports that may influence mortgage rates along with two Treasury auctions. Some of these reports certainly can cause a change in mortgage rates, but none are considered to be key releases. We have at least one event set for release each day.

The week starts early Monday with May’s Durable Goods Orders from the Commerce Department, giving us an indication of manufacturing sector strength. It tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years such as electronics, appliances and airplanes. This data is known to be quite volatile from month to month and is expected to show a decline of 0.5% in new orders from April to May. A large decline would be the ideal scenario for the bond market and would hopefully lead to an improvement in mortgage pricing as it would indicate manufacturing sector weakness.

June’s Consumer Confidence Index (CCI) will be posted late Tuesday morning. This data is relevant to the financial markets because it measures consumer willingness to spend. If consumers are more confident about their own financial and employment situations, they are more apt to make large purchases in the near future, fueling economic growth. If it shows a sizable increase in confidence from last month, we can expect to see a negative reaction in bonds and mortgage rates. Current forecasts are calling for a reading of 116.7, down from last month’s 117.9 reading. The lower the reading, the better the news it is for bonds and mortgage rates.

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

Wednesday does not have an economic report that we need to watch. Thursday brings us the final reading to the 1st Quarter Gross Domestic Product (GDP). The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. However, this particular data is quite aged now (covers January through March) and will likely have little impact on the bond market or mortgage pricing unless it varies greatly from previous readings. Market participants are looking more towards next month’s release of the current quarter’s initial GDP reading. Last month’s first revision showed a 1.2% annual rate of growth in the GDP. Thursday’s update is expected to show the same. A larger increase in the GDP would be considered negative for rates as it means stronger economic activity.

Friday has the final two reports. May’s Personal Income and Outlays data is scheduled for release at 8:30 AM ET Friday. This report gives us an indication of consumer ability to spend and current spending activity. They are important because consumer spending makes up over two-thirds of the U.S. economy. If consumer income is rising, they have more money to spend each month. Analysts are expecting to see an increase of 0.3% in income and also a 0.1% rise in the spending portion of the report. Smaller increases in both of these readings would be considered good news for the bond market and mortgage rates.

The University of Michigan will close out this week’s data when they update their Index of Consumer Sentiment for June late Friday morning. This index is another measure of consumer willingness to spend. A downward revision would be considered good news for bonds and rates. Forecasts are calling for little change from this month’s preliminary reading of 94.5.

Overall, the most active day for mortgage rates could end up being any of them this week. The single most important report is Monday’s Durable Goods Orders but Tuesday and Friday are potential active days also. The best candidates for least active day are Wednesday and Thursday. Despite the lack of an event that is expected to be a market mover, we still could see mortgage rates make a noticeable move this week. Therefore, please maintain contact with your mortgage professional if closing soon and still floating an interest rate.

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