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Mortgage Market in Review – Feb. 24, 2014

 

 

Market Comment

Mortgage bond prices finished the week lower which pushed rates higher. Prices were positive Tuesday in response to the weaker housing data. Housing starts came in at 880k versus the expected 930k mark. The producer price index rose 0.2% as expected. However, the core, which excludes volatile food and energy rose 0.2% which was higher than the expected 0.1% increase. Rates shot higher Wednesday afternoon following the Fed minutes in which several members advocated a Fed Funds rate increase soon. Weekly jobless claims rose 336k versus the expected 335k increase. Unfortunately mortgage interest rates still finished the week worse by 1/4 to 3/8 of a discount point.

LOOKING AHEAD

Economic
Indicator

Release
Date & Time

Consensus
Estimate


Analysis

Consumer Confidence

Tuesday, Feb. 25,
10:00 am, et

81

Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

2-year Treasury Note Auction

Tuesday, Feb. 25,
1:15 pm, et

None

Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

New Home Sales

Wednesday, Feb. 26,
10:00 am, et

405k

Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.

5-year Treasury Note Auction

Wednesday, Feb. 26,
1:15 pm, et

None

Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

Weekly Jobless Claims

Thursday, Feb. 27,
8:30 am, et

335k

Important. An indication of employment. Higher claims may result in lower rates.

Durable Goods Orders

Thursday, Feb. 27,
8:30 am, et

Down 0.2%

Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.

7-year Treasury Note Auction

Thursday, Feb. 27,
1:15 pm, et

None

Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

Q4 GDP 2nd estimate

Friday, Feb. 28,
8:30 am, et

Up 2.3%

Important. The aggregate measure of US economic production. Weakness may lead to lower rates.

U of Michigan Consumer Sentiment

Friday, Feb. 28,
10:00 am, et

81.5

Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Durable Goods Orders

Durable goods orders are generally believed to be a precursor of activity in the manufacturing sector because manufacturing must have an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to be scaled back; otherwise the manufacturer accumulates inventories, which must be financed.

Unfortunately, durable goods orders data has many drawbacks. The first problem with the orders data is that they are extremely volatile. The volatility of the data usually is attributed to the civilian aircraft and defense components of the figure. For example, if Boeing has a big order for one of its jumbo jets, the civilian aircraft category can change by $3-4 billion. The same scenario is evident when an aircraft carrier is ordered, surges in the defense category result. The second problem with the data is that orders are continuously being revised. There are many times in the past when the advance report on durables showed an increase while a revision a week later showed a decrease. The revised data is found in the report on manufacturing orders, shipments, and inventories. Since the data is very volatile and difficult to forecast, there is often a disparity between the actual release and the initial projections. Be cautious heading into data.

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