Monday’s bond market has opened down sharply to start the week. Stocks are in a much better mood with the Dow up 128 points and the Nasdaq up 36 points. The bond market is currently down 24/32 (2.34%), which will likely push this morning’s mortgage rates higher by approximately .250 – .375 of a discount point.
The National Association of Realtors kicked off this week’s calendar by posting May’s Existing Home Sales figures late this morning. They announced that home resales rose 5.1% last month, exceeding forecasts of a smaller increase. This indicates that the housing sector was stronger than many had thought, making the data negative for bonds and mortgage rates.
As mentioned in Friday’s commentary, the end of week rally in bonds looked awful suspicious and unfounded. We are seeing in this morning’s trading that Friday’s move was more of a fool’s rally than the beginning of downward trend in yields and mortgage rates. The bond market is reacting to several things this morning including rumors out of Greece and today’s moderately important economic news. Strong stock gains aren’t helping bonds either today. Unfortunately, if the benchmark 10-year Treasury Note yield breaks above 2.35% and closes there, we could see over 2.40% pretty quickly. That is bad news for mortgage shoppers because mortgage rates tend to track bond yields.
Tomorrow is likely to be an active day for rates also with two more reports scheduled for release, including the most important one of the week. This would be May’s Durable Goods Orders from the Commerce Department at 8:30 AM ET, giving us an indication of manufacturing sector strength. It tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years such as electronics, appliances and airplanes. This data is known to be quite volatile from month to month and is expected to show a decline of 0.5% in new orders from April to May. A large decline would be the ideal scenario for the bond market and would hopefully lead to a decline in mortgage pricing as it would indicate manufacturing sector weakness.
May’s New Home Sales report will be released at 10:00 AM ET tomorrow. It helps us measure housing sector strength by tracking sales of newly constructed homes. This report is similar to tomorrow’s Existing Home Sales report, but covers a much smaller portion of sales than that report does. It is expected to show a small increase in sales, but will likely not have much of an impact on mortgage rates because this data gives such a small snapshot of the housing sector. I believe it will take a large rise in sales or a sizable decline for this data to influence mortgage rates.
Overall, no day stands out as an easy choice for most important. We could see rates change noticeably multiple days this week. The single most important report is tomorrow’s Durable Goods but Thursday’s income and spending data is going to draw quite a bit of attention also. The calmest day will probably be Wednesday unless something unexpected happens. However, as we are seeing this morning, the markets can get volatile at any time. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.