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Mortgage Market in Review – May 31, 2016

Market Comment

Mortgage bond prices finished the week near unchanged which kept rates in check. Rates started slightly better Monday morning amid no data. Comments from Fed officials about rate hikes and the economy tempered those earlier improvements. St Louis Fed President Bullard indicated, “By nearly any metric, US labor markets are at or beyond full employment.” Stronger than expected data also pressured rates mid-week. New home sales were 619K versus the expected 521K. The FHFA House Price Index was up 0.7% versus the expected 0.4% increase. Weaker than expected data the end of the week countered the stronger housing numbers. Consumer sentiment was 94.7. Analysts looked for a reading of 95.5. Preliminary Q1 GDP rose 0.8% versus the expected 0.9% increase. Mortgage interest rates finished the week unchanged after the up and down trading.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Personal Income and Outlays Tuesday, May 31,
8:30 am, et
Up 0.3%,
Up 0.1%
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
PCE Core Inflation Tuesday, May 31,
8:30 am, et
Up 0.1% Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
Consumer Confidence Tuesday, May 31,
10:00 am, et
94.4 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
ISM Index Wednesday, June 1,
10:00 am, et
51.2 Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Fed “Beige Book” Wednesday, June 1,
2:00 pm, et
None Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
ADP Employment Thursday, June 2,
8:30 am, et
168K Important. An indication of employment. Weakness may bring lower rates.
Weekly Jobless Claims Thursday, June 2,
8:30 am, et
265K Important. An indication of employment. Higher claims may result in lower rates.
Employment Friday, June 3,
8:30 am, et
5.0%,
Payrolls +160K
Very important. An increase in unemployment or weakness in payrolls may bring lower rates.
Factory Orders Friday, June 3,
10:00 am, et
Up 0.8% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

PCE Inflation

The US Department of Commerce’s Bureau of Economic Analysis releases the core PCE price index. The report provides the average increase in costs for personal consumption expenditures. PCE is significant in that the Fed uses it in determining inflation as opposed to the prior use of the consumer price index. The PCE includes the price of spending for and on behalf of households. This includes health care spending paid for a household by a business. The CPI only reflects out of pocket expenses paid directly by consumers. The Fed noted recently that inflation is a concern. Data can surprise the financial markets from time to time. Mortgage interest rates will likely spike higher in the short term if the PCE core reading is higher than expected. A reading in line with expectations will likely help rates stay in check. Remember that mortgage interest rates remain historically favorable. Capitalizing on current rates is a sure thing.

 


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