Princeton Capital Blog

This Week’s Market Commentary

December 24th, 2012

Mortgage Market CommentaryThis week brings us the release of only two pieces of monthly economic data that are considered relevant to mortgage rates. It is a holiday-shortened week with the financial markets closing early Monday and remaining closed Tuesday in observance of Christmas. I suspect Monday will be a fairly thin day of trading with many traders home for the holiday already.

There is nothing of relevance scheduled for release Monday, meaning we should see a fairly calm day in the mortgage market unless something unexpected happens. That will be the same situation Wednesday also, although there are some minor private sector and regional manufacturing reports set to be posted that could help nudge trading in one direction or the other. It is likely to be a fairly quiet day also since none of the releases are considered top-tier reports.

The only two relevant monthly economic reports of the week come Thursday morning. The first is November’s New Home Sales data that will give us a measurement of housing sector strength and mortgage credit demand. It is the sister report of last week’s Existing Home Sales report, but covers a much smaller portion of the housing market than that one did. A weakening housing sector is considered good news for the bond market and mortgage rates because a broader economic recovery is less likely in the immediate future. Since bonds tend to thrive in weaker economic conditions, a large decline would be considered favorable for bond prices and mortgage rates. Current forecasts are calling for an increase in sales of newly constructed homes. Ideally, we would like to see a decline in sales.

The Conference Board will post their Consumer Confidence Index (CCI) for December late Thursday morning. This is a fairly important release because it measures consumer willingness to spend. If consumers are more confident about their personal financial situations, they are more apt to make large purchases. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely by market participants and can have a significant influence on mortgage rate direction. Current forecasts are calling for an increase in confidence from November’s reading of 56.0. Analysts are expecting Monday’s release to show a reading of 70.0, meaning consumers felt worse about their own financial situation than they did in November. The lower the reading, the better the news it is for bonds and mortgage pricing.

Overall, we will probably see little change in mortgage rates until possibly Thursday morning when we get to the relevant economic data. Yet what could have the biggest influence on the market and mortgage rates this week is any progress on Fiscal Cliff negotiations. Any bit of news that hints at a possible compromise and resolution should have a positive impact on stocks, hurting bond prices and mortgage rates. However, more of the recent talk that indicates no compromise is near could drive stocks lower, boosting bond prices that lead to improvements in mortgage rates. With the holiday taking the first two days of the week, I believe we won’t see much movement in rates until Thursday at the earliest. After that, things should heat up a bit.

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