Daily Rate Lock Advisory | Americanheromortgage

Indexes Affecting Rate Lock

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Retail Sales

December's Retail Sales report will start this week’s economic data at 8:30 AM ET Tuesday. This government shutdown-delayed data is very important to the financial markets because it measures consumer spending and that category makes up over two-thirds of the U.S. economy. If Tuesday's report reveals weaker than expected retail-level sales, the bond market should rally, improving mortgage rates. Forecasts are calling for a 0.5% increase from November's sales. Favorable results for the bond market and mortgage rates would be a much smaller rise in sales.

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Employment Cost Index (Quarterly)

Also early Tuesday morning will be the release of the 4th Quarter Employment Cost Index (ECI) that measures employer costs for employee wages and benefits, giving us insight into wage inflation pressures. If wages are rising, consumers have more money to spend and businesses usually need to charge more for their products and services. The report is considered moderately important and usually has more of an impact on the bond market than the stock markets. Current forecasts show an increase of 0.8%. A reading lower than expected would be favorable to bonds and Tuesday's mortgage rates, but the Retail Sales data carries much more importance in the markets than this report does.

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Employment Situation

Wednesday brings us the release of January’s Employment report that was pushed back from last Friday’s scheduled release because of last week’s partial shutdown. This highly influential report gives us detailed insight into the labor market with readings such as the U.S. unemployment rate, number of new jobs added or lost during the month and the change in average hourly earnings. Good news for the bond and mortgage markets would be a rising unemployment rate, a modest increase (or decline) in new payrolls added to the economy and little or no rise in earnings. The current consensus is for the unemployment rate to have held at December's 4.4% and approximately 65,000 new jobs added to the economy while monthly earnings rose 0.3%. Stronger than expected numbers will likely fuel bond selling and a sizable upward move in mortgage rates. On the other hand, disappointing numbers should lead to a noticeable improvement in mortgage pricing Wednesday morning.

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Treasury Auctions (5,7,10,20,30 year)

The first of this week’s two long-term Treasury security auctions will be held Wednesday. 10-year Treasury Notes will be sold that day, followed by 30-year Bonds Thursday. These sales will give us an indication of demand for long-term debt, which is what mortgage rates are based on. If they are met with a strong demand from investors, we should see the bond market improve and mortgage rates revise lower after results are announced at 1:00 PM ET those days. However, a lackluster interest from buyers, particularly international investors, will likely lead to broader bond selling and higher mortgage rates.

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Existing Home Sales from National Assoc of Realtors

In addition to the weekly unemployment update, January's Existing Home Sales report will also be released Thursday morning. The National Association of Realtors is expected to say home resales slipped last month, hinting at housing sector weakness. Since long-term securities, such as mortgage bonds, tend to thrive during weaker economic conditions, softer housing numbers would be good news for mortgage rates.

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Consumer Price Index (CPI)

Another highly influential report will be posted early Friday morning. January's Consumer Price Index (CPI) measures inflationary pressures at the consumer level of the economy and bonds are very sensitive to inflation news. The core data is more important to market participants than the overall reading because it excludes more volatile food and energy prices. They are expected to show an increase of 0.3% for January in both the overall and core readings. The year-over-year readings are expected to decline slightly from December's rate. Good news for bonds and mortgage pricing would be smaller monthly increases that would likely lead to a larger than predicted decline in the annual readings. A slower rate of inflation makes long-term securities, such as mortgage bonds, more attractive to investors and should help contribute to lower rates.

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Overall, Wednesday or Friday are likely to be the most active day for rates due to the importance of the Employment and CPI reports. The calmest day should be Thursday unless something unexpected happens. We are expecting to see plenty of movement in the financial markets and mortgage rates this week. Therefore, it would be prudent to keep a close eye on them if still floating an interest rate and closing in the near future.

Rate Lock Advisory

Mortgage Rate Trend

Indexes Affecting Rate Lock

Retail Sales

Employment Cost Index (Quarterly)

Employment Situation

Treasury Auctions (5,7,10,20,30 year)

Existing Home Sales from National Assoc of Realtors

Consumer Price Index (CPI)

none

Float / Lock Recommendation