Financing Homes in Lake Tahoe and Truckee since 1992.

Morning Interest Rate Update-June 5, 2013

Tahoe Mortgage Rates and Tahoe Home Loan Rates:

Wednesday’s bond market has opened in positive territory following the release of some favorable economic data. The stock markets are showing early weakness with the Dow down 70 points and the Nasdaq down 16 points. The bond market is currently up 12/32, which should improve this morning’s mortgage rates by approximately .125 – .250 of a discount point.

Weakness late yesterday is limiting this morning’s improvement, but I believe we may see further losses in stocks and strength in bonds as we head into Friday’s major economic data (hence the optimistic stance towards mortgage rates this week). There certainly is no guarantee that this is what will take place, but weaker than expected employment numbers are likely to fuel a sizable sell-off in stocks and a nice rally in bonds. Unfortunately, strong numbers will have an opposite effect and cause mortgage rates to move higher. If Monday’s ISM number is any indication of what we can expect from May’s readings, we should be in good shape.

The first of today’s events was the revised 1st Quarter Productivity and Costs data at 8:30 AM ET that showed a 0.5% annual rate in the worker productivity reading and a sizable decline of 4.3% in the labor cost reading. The productivity reading matched forecasts and indicates that worker output per hour grew at a modest pace during the first three months of the year. Higher levels of productivity allows the economy to expand with low inflationary concerns, so ideally, the bond market prefers to see larger increases. The cost reading was heavily distorted due to revised figures that were related to end of year compensation in the last quarter of 2012 before higher tax rates kicked in, making first quarter numbers look much lower compared to 4th quarter 2012. Since the productivity reading matched forecasts and the labor cost reading isn’t credible due to the revisions, we can consider this data neutral to slightly positive for the bond market and mortgage rates.

The Commerce Department gave us April’s Factory Orders data at 10:00 AM ET this morning, announcing an increase of 1.0% in new orders in durable and non-durable goods. This was a bit weaker than the 1.6% increase that was expected. Since that means the manufacturing sector was not as strong as many thought, we can consider the data good news for mortgage rates.

Also worth noting is the release of the Federal Reserve’s Beige Book at 2:00 PM ET this afternoon. This report details economic conditions throughout the U.S. by Federal Reserve region and 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 improve later today. On the other hand, if the report reveals signs of inflation growing or rapidly expanding economic activity in many regions, we could see mortgage rates revise higher during afternoon trading.

Tomorrow’s only relevant data is the weekly unemployment update from the Labor Department. They are expected to announce that 348,000 new claims for unemployment benefits were filed last week. This would be a decline from the previous week’s 354,000 initial claims, hinting that the employment sector strengthened slightly last week. The higher the number of new claims, the better the news it is for the bond market and mortgage rates as it would indicate a weakening employment sector. This report usually doesn’t heavily influence mortgage rates because it tracks only a single week’s worth of initial filings. However, since the almighty monthly report comes Friday morning, we may see more of a reaction to this weekly report than we usually do.