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Daily Rate Lock Advice- 10/22/2006

The first report will probably have little impact on the financial markets and mortgage rates, especially with the amount and importance of the rest of the week’s data. September’s Existing Home Sales reports will be posted at 10:00 AM ET Wednesday. September’s New Home Sales data will be posted Thursday morning. These reports give us an indication of housing sector strength and mortgage credit demand. I don’t see them having much of an influence on the bond market or mortgage rates, but a reading that varies greatly from analysts’ forecasts could lead to a slight change in mortgage pricing.

The seventh FOMC meeting of the year will begin Tuesday and adjourn Wednesday afternoon. This is the third and final two-day meeting and the second to last meeting of the year. Most analysts believe that the Fed will leave key short-term interest rates unchanged at this meeting. The post-meeting statement will likely cause the volatility in the markets and rates if it gives any indication of the Fed’s next move.

At 8:30 AM ET Thursday, the Commerce Department will post Durable Goods Orders for September. This report gives us a measurement of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items. Analysts are currently calling for an increase in new orders of approximately 2.3%. If we see a larger than expected rise in orders, mortgage rates will probably rise as bond prices fall. A weaker than expected reading should be good news for the bond market and mortgage rates, but this data can be quite volatile from month to month and is difficult to forecast.

Friday morning brings us the last two reports of the week. The first is likely to have a major impact on the financial markets and mortgage pricing as it is the single most important report we see each quarter. It is the preliminary version of the 3rd Quarter Gross Domestic Product (GDP). The GDP is considered to be the benchmark measurement of economic growth because it is the sum of all goods and services produced in the U.S. There are three versions of this report, each a month apart. Friday’s release is the first and usually has the biggest impact on the markets. Current forecasts call for an increase of approximately 2.6% in the GDP. I think we need to see a smaller increase for the bond market to rally and mortgage rates to drop. Just matching the estimate will probably bring a stock market rally and could cause mortgage rates to rise Friday.

Friday’s last report comes at 10:00 AM ET when the University of Michigan updates their Index of Consumer Sentiment for this month. Current forecasts show this index rising slightly from this month’s preliminary reading of 92.3. This index is important because it helps us measure consumer confidence, which is believed to indicate consumers’ willingness to spend. But, because of the importance of the earlier GDP release, it may not cause much movement in mortgage rates Friday.

Overall, this is going to be a very busy week in the financial and mortgage markets. The FOMC meeting and the GDP report are the most important events of the week. If the Fed leaves rates unchanged and doesn’t sound an alarm about inflation concerns, we should be in good shape in terms of mortgage rates. The GDP can also cause a significant change in mortgage rates. The Fed meeting could bring inflation concerns. With no relevant news scheduled for release tomorrow or Tuesday, we may see pressure in bonds as traders prepare for the meeting. Therefore, I am holding the lock recommendation for short-term periods. I suspect that the GDP may come in light, so depending on what the post FOMC meeting statement says, I may shift to float recommendations across the board.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now...

This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

©Mortgage Commentary 2006

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