MARKET COMMENT Mortgage bond prices rose last week pushing mortgage interest rates lower. Bond trading remained volatile with large swings throughout the week. Trading was tied to news from Europe on the ongoing Greek debt crisis and stocks. The debt crisis in the Euro Zone will continue to drive trade for the foreseeable future. Federal Reserve Chairman, Ben Bernanke, acknowledged in his press conference that the economy had hit a “soft patch” and that the governing body expected to see unemployment remain “elevated” for years. Mortgage bonds ended the week better by about 1/2 of a discount point.
PCE core inflation data may result in mortgage interest rate volatility. If inflation exceeds estimates we could see a spike in mortgage interest rates. Tame inflation readings are always welcome.
• PCE Core Inflation; June 27; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
• Personal Income and Outlays; June 27; Consensus Estimate Up 0.1%, Up 0.2%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
• Consumer Confidence; June 28; Consensus Estimate 60.8; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
• Weekly Jobless Claims; June 30; Consensus Estimate 412k; Important. An indication of employment. Higher claims may result in lower rates.
• U of Michigan Consumer Sentiment; July 1; Consensus Estimate 69.4; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
• Construction Spending; July 1; Consensus Estimate Up 0.1%; Low importance. An indication of economic strength. Weakness may lead to lower rates.
• ISM Index; July 1; Consensus Estimate 55.2; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
CONSUMER SENTIMENT In the US the consumer is often seen as the driving force of the economy. A large percentage of the total economic output is for personal use. Analysts attempt to predict the future spending patterns of consumers to gauge economic activity.
The Michigan consumer sentiment index is one piece of data used to measure consumer attitudes. The index is derived from a telephone survey, which gathers information on consumer expectations of the overall economy. The preliminary report is released around the 10th of each month and then is revised throughout the remainder of the month. It is significant in that it provides a precursor into consumers’ willingness to spend in the months ahead. However, many analysts point out that willingness to spend does not always convert to actual expenditures.
Despite economic uncertainty, liquidity issues, housing market weakness, and high energy costs, American consumers continue to spend. However, many analysts question whether consumers can continue to buoy the economy. Look for any variation from estimates to cause mortgage interest rate volatility. Signs of eroding consumer confidence could lead to improvements in mortgage interest rates. However, stronger than expected figures could spike rates higher.
Remember that mortgage interest rates remain historically favorable and are subject to change on a daily basis.
Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee