Financing Homes in Lake Tahoe and Truckee since 1992.

Mortgage and Interest Rate Trends

Build It And They May Buy-Commentary ~ June 13, 2014

 The closest we have to Big News here is that there was an upward spike in the number of mortgages applied for in the week ending June 6. Is this exciting? It depends on how this is interpreted.

Rising demand for mortgages could, after all, signal that mortgage rates may finally edge higher. But, as is well known by now, whatever took the demand for mortgages-both purchase money and refinancings-higher could turn on a proverbial dime.

On the other hand, it is somewhat possible–though perhaps not worthy of betting actual money on–that the relatively good employment figures have for the past few months been suggesting that we’re edging toward a better economy, with more mortgage applications and greater real estate sales volume. We’ve had a medium-term improvement to the number of applications for unemployment insurance as well as a gradual rise to the number of pending home sales and perhaps even a growth in the number of new home sales that may be with us for a while.

That said, the curious thing about this possibility is how few analysts are talking about it. Very few market-watchers seem ready to go out on a limb these days, particularly with so many political problems vying for our attention.

At this moment, though, there is reason to be putting together one’s financial plan for the coming few months–and years. It is very likely a good time to keep in mind the against-the-grain analysis of Shaila Dewan in the International New York Times. She joined other analysts in asserting that “price growth appears to have peaked in several cities, particularly in the South and West, where large inventories of foreclosures have already been absorbed…. They predicted that in response, builders would step up the construction of new homes.”

This is what many market observers have been awaiting. The fact that we have a shortage of for-sale inventory–and a tremendous lack of new construction to build up that inventory–just hasn’t been addressed adequately with the completion of new inventory. It may indeed be worth waiting (as patiently as we still can) for the spikes in new construction to announce a resumption of the true real estate recovery…the one that addresses our underlying problems.

Perhaps the rising tide of new mortgages is a very early harbinger of a stronger housing recovery ahead.

Lake Tahe and Incline Village Home Loan Rates and Trends – June 2, 2014

Lake Tahoe and Incline Village Home Loan Rates:

There are six economic reports scheduled for release this week that have the potential to affect mortgage rates. We have monthly reports set for every day except Thursday with a couple of those reports considered to be highly important. Therefore, I believe it will be another active week for mortgage rates.

The Institute for Supply Management’s (ISM) manufacturing index will be posted late tomorrow morning. This highly important index measures manufacturer sentiment. One reason why it is considered so important is the fact that it is the first piece of economic data posted every month that covers the preceding month. In other words, it is the first look into the previous month’s economic conditions. That differs from many reports that aren’t released until mid or late month. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. Analysts are expecting to see a 55.6 reading in this month’s release, meaning that sentiment rose a little during May. A smaller reading will be good news for the bond market and mortgage shoppers while a larger than expected increase could contribute to higher mortgage rates tomorrow.

Tuesday’s only release will come from the Commerce Department, who will post April’s Factory Orders data during late morning trading. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn’t expected to cause much of a change in rates this month. Current forecasts are calling for an increase in orders of 0.5%.

Wednesday has three reports worth watching. The ADP Employment report is first, set for release before the markets open. It has the potential to cause some movement in the markets if it shows much stronger or weaker numbers than expected. This report tracks changes in private-sector jobs of ADP’s clients that use them for payroll processing. While it does draw attention, it is my opinion that it is overrated and is not a true reflection of the broader employment picture. It also is not accurate in predicting results of the monthly government report that follows a couple days later. Still, because we have seen reaction to the report recently, we should be watching it. Analysts are expecting it to show that 200,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.

The revised 1st Quarter Productivity and Costs data is the second that will be released Wednesday. This data measures employee output and employer costs for wages and benefits. It is considered to be a measurement of wage inflation. Many analysts believe that the economy can grow with low inflationary pressures when productivity is high. Last month’s preliminary reading revealed a 1.7% decline in productivity and a 4.2% increase in labor costs. Wednesday’s update is predicted to show that productivity fell at a 2.5% annual rate while labor costs rose 4.8%. I don’t think this piece of data will have much of an impact on the bond market or mortgage pricing either unless it varies greatly from expectations.

Wednesday’s final relevant report is the Federal Reserve’s Beige Book, which is named simply after the color of its cover. This report details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. If it shows surprisingly softer economic activity since the last report, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could see mortgage rates revise higher Wednesday afternoon.

Thursday doesn’t have any monthly or quarterly economic data for us to be concerned with but Friday’s sole report is arguably the single most important report that we see each month. The Labor Department will post May’s Employment data early Friday morning, giving us key employment readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate move from 6.3% to 6.4% with approximately 220,000 jobs added to the economy during the month. A higher than expected unemployment rate and a much smaller number than the 164,000 new payrolls would be great news for the bond market. It would probably create a sizable rally in bonds, leading to lower mortgage rates Friday. However, stronger than expected numbers should cause a stock rally and a spike in mortgage rates.

Overall, it appears that Friday is the key day of the week with regards to mortgage rate movement. However, tomorrow or Wednesday could also be active days for mortgage pricing. Tuesday or Thursday will probably be the lightest day unless something totally unexpected happens with stocks. Although, as we have seen many times over the past couple weeks, we don’t necessarily have to have a significant event or economic report released for the bond market and mortgage rates to become volatile