From 10,000 feet the story of the week was "Mortgage Rates Rebound from Losing Streak", but when you look closer, I think the bigger story was "Mortgage Rates React to Economic Data. Twice!".
Once for the worse, once for the better. Yesterday was the better and it was the reason why mortgage rates rebounded from their three day losing streak.
Since mortgage rates have basically moved (lower) at will for the majority of the summer, I think we should stop and call attention to the times when mortgage rates actually react to economic data. Not because I feel the bond market is trying to tell us the economic environment is fundamentally worse or better (LONG TERM OUTLOOK), but because I think the bond market is telling us it is looking for some directional guidance (SHORT TERM OUTLOOK).
Plain and Simple: it's any ones guess what mortgage rates do on a day over day basis, investing outlooks are extremely non-committal and recent behavior seems to suggest the market is willing to take guidance from any source. BE ON THE WATCH FOR CHOPATILITY
Personally I think we've seen mortgage rates hit another mid-term bottom. Mid-term as in the next month. This is a function of the way mortgages are securitized in the secondary market (READ MORE). Longer term, unfortunately I still can't look passed the "double dip" scenario yet. If the global economic environment unravels around us, its possible mortgage rates could move below 4.25%, on average. I really cannot endorse that bias though. It would mean the world was heading in a very bad direction. No one wants that. I don't even wanna think about the death of capitalism. Let's just keep it in the "here and now"...
The data calendar is semi busy in the week ahead but it starts slow. Existing Home Sales on Tuesday and Durable Goods on Wednesday highlight the first half of the week. Economists are forecasting a 12.0% decline in sales of previously owned homes. Durable Goods Orders proviode a gauge on the amount of goods moving around the economy. When goods move around the economy, so does money. Money moving around the economy helps keep people employed. Durable goods orders are expected to have improved 2.8% in July vs. -1.2% in June. New Home Sales are released on Wednesday as well, forecasters see New Home Sales holding near record low levels of activity, no surprises there. Weekly Jobless Claims come out on Thursday and Consumer Sentiment and GDP on Friday plus Ben Bernanke's talking head on TV. All of these events carry high potential to be taken as "worse than expected" by the market.
If data is worse than expected, mortgage rates might improve a few basis points but those gains won't be anything monumental, nothing worth the risk of floating in the short run. If economic data is better than expected or even just "as expected", mortgage rates will go up. Rates are much more likely to rise than fall right now, but its possible that weakness will be short lived though. BEWARE: The move higher could be large and it could happen quickly, be prepared to deal with a little extra volatility. Also pressuring rates higher will be another round of government debt auctions. This time we get 2-year Treasury notes, 5-year Treasury notes, 7-year Treasury notes, and a 30-Year TIPS offering.
Not to add more confusion to an already complicated situation, but some lenders are actually offering lower rates than they were last Friday. This might seem odd but I remind of the additional factors affecting mortgage rates besides MBS prices. Secondary marketing managers have many considerations to account for when they build rate sheets. READ MORE.