This week is relatively light in terms of scheduled economic reports that are relevant to mortgage pricing. None of the factual economic reports are considered to be highly important to the financial markets or mortgage pricing. The data that is on the agenda is considered to be moderately important, but Wednesday afternoon and Thursday morning have events scheduled that could be the biggest factor in whether mortgage rates move higher or lower this week.
Wednesday afternoon has the Federal Reserve’s release of their Beige Book. This data 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 has no important economic data scheduled, but Fed Chairman Bernanke will speak before a Congressional Joint Economic Committee about his outlook for the economy. His words are always the focus of attention and can be highly influential on the markets and mortgage rates. It will be interesting to see exactly what he says and how much his outlook has changed in the recent weeks, especially after Friday’s disappointing
April’s Goods and Services Trade Balance report will close the week’s economic reports early Friday morning. This data gives us the size of the U.S. trade deficit and will be released at 8:30 AM ET. It isn’t likely to cause much movement in the markets or mortgage rates, but nevertheless forecasters are expecting to see a $49.9 billion trade deficit. It will take a wide variance from this projection for the data to influence mortgage rates.
Overall, it likely is going to be a moderately busy week for the mortgage market. The most action will likely come during the middle days, assuming that the stock markets don’t go into heavy selling or rally. Friday’s employment data helped fuel large stock losses and pushed bond yields to new record lows. The loss puts the Dow just a little more than 100 points away from breaking below an extremely important benchmark of 12,000. If stocks recover a good part of last week’s losses, we can expect bond prices to suffer and mortgage rates to rise. On the other hand, further stock weakness could lead to more funds moving into bonds and another round of improvements to mortgage rates.
As referenced Friday, I believe the major indexes still have plenty of room to fall, which traditionally makes bonds more attractive as investors seek a safe-haven to place funds and escape the volatility. However, we should note that the 10-year Treasury is currently at a historic low yield of 1.47%. Even lower than when the financial crisis was at its peak. My concern is that I am not sure just how much lower we can see yields fall before investor appeal wanes, raising concerns about inflationary risks in the future. We are in unchartered waters with mortgage rates so low, stocks still relatively overpriced, overseas concern rising again and bond yields at record lows. It is going to be interesting to see what happens over the summer. At some point in the near future we will need to shift to a conservative approach towards mortgage rates, but for the time being, enjoy the improvements