Updated on July 22, 2018 10:35:48 PM EDT
Junes Existing Home Sales from the National Association of Realtors will kick off the weeks calendar late tomorrow morning. This report gives us a measurement of housing sector strength and mortgage credit demand. Current forecasts are calling for a small increase in sales from Mays totals. A drop in sales would be considered good news for bonds and mortgage rates because a weakening housing sector makes broader economic growth more difficult. However, unless this data varies greatly from forecasts it probably will lead to only a minor change in mortgage rates.
We will get another housing sector release late Wednesday morning when the Commerce Department posts Junes New Home Sales report. This data tracks sales of newly constructed homes, but they make up a much smaller portion of the housing sector than existing home sales. Analysts are expecting to see a decline from Mays sales, indicating that the new home portion of the housing sector was soft last month. Favorable news would be a sizable decline in sales.
There are also two Treasury auctions that are worth watching this week. 5-year Notes will be sold 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. On the other hand, strong sales usually make bonds more attractive to investors, bringing more funds into the bond market. The buying of bonds that follows translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during early afternoon hours Wednesday and Thursday.
The Commerce Department will post Junes Durable Goods Orders at 8:30 AM ET Thursday. Current forecasts are calling for an increase in new orders of 3.2% from May to June. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. A much stronger than expected rise may lead to higher mortgage rates Thursday morning because it would point towards economic strength. If it reveals a large decline in new orders, mortgage rates should move lower. It should be noted though that this data is known to be extremely volatile from month to month, so a minor difference between forecasts and the actual reading may not move the markets or mortgage rates.
Friday starts with the preliminary reading of the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. This index is considered to be the benchmark indicator of economic growth or weakness. It is the total of all goods and services that are produced in the U.S. and usually has a great deal of influence on the financial markets. This reading is arguably the single most important report we get regularly. Current forecasts are estimating that the economy grew at a 4.1% annual rate during the second quarter, rebounding from the first quarters 2.0% annual rate. A stronger rate of growth should hurt bond prices, leading to higher mortgage rates Friday. But a much smaller than expected reading will likely fuel a bond market rally and push mortgage pricing lower since it would indicate the economy was not as strong as many had thought.
The weeks calendar closes with Julys University of Michigan Index of Consumer Sentiment just before 10:00 AM ET Friday that will help us measure consumer optimism about their own financial situations. This data is considered relevant because rising consumer confidence usually translates into higher levels of spending that adds fuel to economic growth that makes bonds less appealing to investors. Fridays release is an update to the preliminary reading we saw two weeks ago, so unless we see a drastic revision to the preliminary estimate of 97.1, I think the markets will probably shrug off this news.
Overall, Friday has the best potential to be the most active day for mortgage rates due to the GDP release, but Thursday may be pretty active also. The calmest day could be Tuesday. Besides the economic releases and auctions, we also will be watching corporate earnings. There is a high number of companies reporting, including big names such as Google, Facebook, AT&T, Boeing and Amazon. Surprises in some of those earnings figures can heavily influence stocks, causing funds to move into or away from bonds. With so much on tap this week that may influence mortgage rates, it would be prudent maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.
©Mortgage Commentary 2018