Princeton Capital Blog

This Week’s Market Commentary

March 19th, 2012

This week brings us the release of four monthly reports for the bond market to digest, but none of them are considered to be highly important. Not that it necessarily matters of recent. As we saw last week, favorable results from what is thought to be influential economic data, apparently isn’t enough to expect bond strength and improvements in mortgage rates.

Simply put, last week was just ugly for mortgage shoppers with no clear justification for the bond sell-off and spike in mortgage pricing. I would like to say that this week is a good opportunity to recover some of those losses. Unfortunately, I don’t see anything scheduled that is likely to be that catalyst.

There is nothing of importance scheduled for release tomorrow. We saw some strength in mortgage bonds late Friday, so if your lender did not improve pricing during afternoon hours, you have an improvement of approximately .125 – .250 of a discount point awaiting tomorrow’s rate sheet. That is assuming that we don’t see a huge rally in stocks during early trading. I would like to say that the worst of the bond sell-off is well behind us, but we should proceed cautiously until there is some stabilization in the market. The fact that stocks were not able to extend their rally the latter part of the week also tells me that the sell-off in bonds was a knee-jerk reaction or some type of correction that is not likely to continue moving forward. Accordingly, I am cautiously optimistic towards mortgage rates at the moment.

The general theme of the core of this week’s economic news is housing. Three of the four reports that are scheduled give us different insights into the housing sector. They begin early Tuesday morning when February’s Housing Starts will be posted. This report tracks construction starts of new housing. It doesn’t usually cause much movement in mortgage rates and is considered one of the less important reports we see each month. It is expected to show an increase of less than 1% in housing starts, indicating slight growth in the housing sector. Good news for the bond market and mortgage rates would be a sizable decline in new starts. Also Tuesday is the first of four lectures that Fed Chairman Bernanke will make at the George Washington School of Business. The second is Thursday while the remaining two are scheduled for next week. I doubt they will lead to movement in the markets or changes to mortgage rates, but we will be watching the first one at 12:45 PM Tuesday for any impact his words may have.

February’s Existing Home Sales will be posted late Wednesday morning by the National Association of Realtors. It will also give us a measurement of housing sector strength and mortgage credit demand, but is the most likely of the three to influence mortgage rates. It is expected to reveal an increase in home resales, meaning the housing sector strengthened last month. Ideally, bond traders would prefer to see a decline in sales, pointing towards a still weakening housing sector. However, a small increase is expected, so it shouldn’t cause much alarm in the bond and mortgage markets. Bad news would be a sizable increase in sales, indicating that the housing sector is gaining momentum. That could be troublesome for the bond market and mortgage rates because housing and unemployment were the two biggest hurdles the economy had to overcome. Recent reports have some traders much more optimistic about the employment sector, so overwhelmingly strong housing news could lead to another rise in mortgage rates.

The Conference Board will post its Leading Economic Indicators (LEI) for February late Thursday morning. This index attempts to measure economic activity over the next three to six months. It is considered to be moderately important, but likely will not have a significant impact on mortgage rates. Current forecasts are calling for a 0.6% increase, meaning it is predicting that economic activity will likely expand fairly rapidly in the coming weeks. A smaller than forecasted rise, or better yet a decline would be considered good news for the bond market and mortgage rates.

Friday’s only news is the sister release to Wednesday’s Existing Home Sales report. The Commerce Department will give us February’s New Home Sales figures late Friday morning. They are expected to announce little change from January’s sales level of newly constructed homes. This report tracks a much smaller percentage of home sales than Wednesday’s report covers, so it should have a much weaker influence on the markets and mortgage pricing.

Overall, it is difficult to label one particular day as the most important of the week. The single most important report will likely be Wednesday’s Existing Home Sales, but none of the week’s data is known to be a major market mover. If the stock markets move lower, we could see gains in bonds and improvements in mortgage rates. But, if stocks move higher, pressure in bonds is possible, leading to higher mortgage pricing again. Therefore, I still recommend proceeding with caution if you are floating an interest rate, at least until some more time has passed since last week’s silliness.

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