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Lake Tahoe Mortgage Rate Trends- December 23, 2015

Wednesday’s bond market has opened in negative territory due to early gains in stocks and stronger than expected economic news. The major stock indexes are showing noticeable improvements with the Dow up 89 points and the Nasdaq up 25 points. The bond market is currently down 9/32 (2.26%), which should push this morning’s mortgage rates higher by approximately .125 of a discount point.

This morning had two economic reports released at 8:30 AM ET and two during late morning trading. The first and most important of the four was November’s Durable Goods Orders that showed no change from October’s level. This indicates flat manufacturing activity, at least in big-ticket products. Analysts were expecting to see a decline of 0.7%, so the flat reading means new orders were stronger than expected. However, that size of a variance is not nearly as relevant in this data as it is in most of the other reports we see. That is because this data is known to be quite volatile from month to month. Still, the results are technically bad news for the bond and mortgage markets since they show stronger than expected economic activity.

November’s Personal Income and Outlays data was the second release. It revealed 0.3% increases in both the income and spending readings. Those pegged forecasts, making them neutral to slightly negative for mortgage pricing. The increase in income means consumers had more money to spend than they did last month and the rise in spending shows that they did spend it. Because consumer spending makes up over two-thirds of the U.S. economy, any related data is relevant to the markets.

The third release of the morning was the revised University of Michigan Index of Consumer Sentiment for December just before 10:00 AM ET. It came in at 92.6, which was an upward revision from the preliminary reading of 91.8 and a little higher than the 92.0 that was expected. The higher reading means surveyed consumers were more optimistic about their own financial situations than previously thought and are more likely to make a large purchase in the near future. Accordingly, we should also consider this bad news for the bond market and mortgage rates.

November’s New Home Sales data was the final monthly economic report of the day and this week. This report gives us another measurement of housing sector strength and mortgage credit demand. It showed a 4.2% increase in sales of newly constructed homes, exceeding expectations of a 2.0% rise. Even though that would appear to be bad news for mortgage rates, the number of sales is offsetting that larger increase. A sizable downward revision to the number of October sales puts November’s sales to a lower level than October’s were previously thought to be. This allows us to label this report as neutral rather than negative for the mortgage market.

Tomorrow’s only data is last week’s unemployment update. It will give us a small snapshot of the employment sector and is expected to show that 271,000 new claims for unemployment benefits were filed last week. The higher the number of claims, the better the news it is because rising claims hints at a softening labor market. However, since this is only a weekly report, it likely will not have much of an impact on mortgage rates unless it shows a significant variance from forecasts.

The markets will be closing early tomorrow and remain closed Friday in observance of the Christmas Day holiday. Stocks will close at 1:00 PM while bonds will close at 2:00 PM ET. These holidays sometimes cause a little additional volatility as investors look to protect themselves over the long weekend. We should see very thin or light trading as many traders will be home for the holiday already. Therefore, we shouldn’t be too concerned about any bond losses or excited about gains that come during tomorrow’s shortened session.