Tuesday’s bond market has opened in negative territory even though we received some favorable economic news this morning. The stock markets are showing relatively minor gains with the Dow up 38 points and the Nasdaq up 12 points. The bond market is currently down 8/32 (2.22%), which should push this morning’s mortgage rates higher by approximately .250 of a discount point.
The second revision to the 3rd Quarter Gross Domestic Product (GDP) reading was the first of today’s two relevant economic releases. It showed a 2.0% annual rate of growth as it was expected to do. This means that the economy grew at a slightly slower pace than previously thought (2.1%) during the third quarter. While that technically is good news for bonds, it is aged data now and was not a surprise to the markets. Therefore, it has had no impact on today’s mortgage rates.
November’s Existing Home Sales figures were posted at 10:00 AM ET today. The National Association of Realtors announced a 10.5% decline in home resales during November. This was much weaker than analysts were expecting to see, indicating a weakening housing sector. That is good news for bonds and mortgage rates, but unfortunately for mortgage borrowers the data apparently is being ignored this morning. This should have been enough of a variance from forecasts to have a positive impact on rates.
There are four economic reports due to be released tomorrow morning that may influence mortgage rates. They start with November’s Durable Goods Orders at 8:30 AM ET. This data gives us an important measurement of manufacturing sector strength by tracking orders for big-ticket items or products that are expected to last at least three years such as appliances, airplanes and electronics. Analysts are expecting the report to show a 0.7% decline in new orders. A larger drop in new orders would indicate that the manufacturing sector was weaker than many had thought. This would be good news for the bond market and should help push mortgage rates lower. However, a large jump in orders could lead to mortgage rates moving higher early Wednesday morning. This data is known to be quite volatile from month-to-month though, so it is not unusual to see large headline numbers in this report.
Next up is November’s Personal Income and Outlays data, also at 8:30 AM ET. It will give us an important measurement of consumer ability to spend and current spending habits. Since consumer spending makes up over two-thirds of the U.S. economy, any related data usually has a noticeable impact on the financial markets and mortgage rates. Current forecasts are calling for a 0.3% increase in income and a 0.3% increase in spending. If this report reveals weaker than expected readings, we could see the bond market improve and mortgage rates drop slightly Wednesday morning, especially if the Durable Goods Orders report gives us favorable results also.
The third release of the day is the revised University of Michigan Index of Consumer Sentiment for December just before 10:00 AM ET. Current forecasts are calling for a slight increase (92.0 from 91.8), meaning surveyed consumers felt a little better about their own financial and employment situations than they did in October. Bond traders would prefer to see a decline because waning confidence usually means consumers are less likely to make a large purchase in the near future.
November’s New Home Sales data is the final monthly economic report of the week. This report gives us another measurement of housing sector strength and mortgage credit demand. It is the sister report of Today’s Existing Home Sales report, but covers a much smaller portion of the housing market than that one does. A weakening housing sector is considered good news for the bond market and mortgage rates because broader economic growth 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 large drop in sales.