| Market Comment
Mortgage bond prices finished the week near unchanged which kept rates in check. We started the week on a slightly positive note amid no data and signs of weakness out of the eurozone. That reversed Tuesday and Wednesday with some minor selling pressure. Tame inflation readings later in the week helped keep rates steady. Producer prices rose 0.1% versus the expected 0.2% increase. The core rose 0.1% as expected. Consumer prices rose 0.2% versus the expected 0.3% increase. Core prices rose 0.2% versus an expected 0.3% increase. Consumer sentiment was a solid 98.8 which was in line with expectations. Overall the data showed solid economic conditions with little price pressures. We ended the week with no real changes to discount points.
LOOKING AHEAD
Economic
Indicator |
Release
Date & Time |
Consensus
Estimate |
Analysis |
| Retail Sales |
Tuesday, May 15,
8:30 am, et |
Up 0.7% |
Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. |
| Business Inventories |
Tuesday, May 15,
10:00 am, et |
Up 0.5% |
Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates. |
| NAHB Housing Index |
Tuesday, May 15,
10:00 am, et |
70 |
Moderately Important. A measure of single family housing. Weakness may lead to lower mortgage rates. |
| Housing Starts |
Wednesday, May 16,
8:30 am, et |
1325K |
Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Industrial Production |
Wednesday, May 16,
9:15 am, et |
Up 0.8% |
Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization |
Wednesday, May 16,
9:15 am, et |
77.5% |
Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates. |
| Weekly Jobless Claims |
Thursday, May 17,
8:30 am, et |
212K |
Important. An indication of employment. Higher claims may result in lower rates. |
| Philadelphia Fed Survey |
Thursday, May 17,
10:00 am, et |
23 |
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| Leading Economic Indicators |
Thursday, May 17,
10:00 am, et |
Up 0.3% |
Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
CRE
Commercial real estate (CRE) is one asset class that has seen prices rise to the point that many fear a collapse is in the making. Banks hold trillions of dollars in loans backed by CRE and the Federal Reserve is growing concerned about valuations of the underlying assets. The most recent quarterly Fed report indicated banks eased lending terms for CRE borrowers which added to the “bubble” fears.
The danger in the CRE market is the fact that it is highly leveraged, developers have little “skin in the game.” To shore up profits following the 2008 bust banks lined up to provide financing, which caused prices to rise even further. Sound familiar, banks providing easy money to high LTV borrowers? Last time that happened it did not turn out well.
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