Princeton Capital Blog

This Week’s Market Commentary

January 21st, 2013

Mortgage Market CommentaryThis week brings us the release of only three pieces of monthly economic data for the markets to digest, but none of them are considered to be highly important for mortgage rates. It is a shortened trading week with the stock and bond markets closed Monday in observance of the Martin Luther King Jr. holiday. The financial and mortgage markets will reopen Tuesday morning for regular trading hours.

The week’s first relevant economic report comes late Tuesday morning when the National Association of Realtors posts December’s Existing Home Sales. This data will give us a measurement of housing sector strength and mortgage demand by tracking home resales. It is expected to show an increase in sales of approximately 1.0%, meaning the housing sector strengthened a little last month. That would be considered negative news for the bond market and mortgage rates because a strengthening housing sector makes a broader economic recovery more likely. However, as long we don’t see a significant surprise in its results, it shouldn’t have a noticeable impact on Tuesday’s mortgage rates.

December’s Leading Economic Indicators (LEI) is the next report scheduled for release. It will be posted at 10:00 AM ET Thursday morning by the Conference Board, who is a New York-based business research group. It attempts to predict economic activity over the next several months, but since it is compiled and posted by a non-governmental agency, it is not considered to be of high importance to the financial and mortgage markets. Thursday’s release is expected to show a 0.5% increase, meaning the indicators are predicting a moderate increase in economic activity this spring. Theoretically, that would be bad news for mortgage rates because long-term securities such as mortgage-related bonds tend to do better in weaker economic conditions. However, as long as we don’t see a much stronger than predicted increase, I don’t think this data will have much of an influence on mortgage pricing.

The third and final relevant report of the week is December’s New Home Sales report late Friday morning. It is considered to be the sister release to last week’s Existing Home Sales, giving us a small snapshot of housing sector strength. It tracks a much smaller portion of home sales than last week’s report did and is forecasted to show an increase in sales of newly constructed homes. However, this data is not important enough to heavily influence mortgage pricing unless it varies greatly from forecasts.

Overall, it appears that we may have a fairly quiet week ahead of us in the mortgage market. That is unless we see something drastic happen in stocks. The major stock indexes closed last week at their highest levels in 5 years, which leads me to believe they may be ready for another pullback. We have some major corporate earnings news this week from companies such as Apple, IBM and Google to name a few that could heavily sway stock trading. Weaker than expected earnings and/or outlooks in some of the key earnings reports should cause stocks to drop and investor funds to move into bonds, leading to lower mortgage rates. On the other hand, good news in those earnings releases could extend the recent stock rally, drawing funds away from bonds. The latter would likely cause mortgage rates to move higher this week. I am holding the short and mid-term lock recommendations for the time being, but am prepared to shift to a less conservative position if the major stocks indexes start to move lower.

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