Updated on May 23, 2017 10:35:57 AM EDT
The Commerce Department gave us Aprils New Home Sales report at 10:00 AM ET this morning. It revealed an 11.4% decline in sales of newly constructed homes last month. This was a much larger decline than was expected, meaning the new home portion of the housing sector was softer than many had thought. That makes the data favorable for bonds and mortgage rates because a weaker housing sector makes broader economic growth less likely. However, this is not considered to be a highly important piece of data, so we are seeing a minimal reaction in the bond market.
Tomorrow has three events worth watching as they may influence mortgage rates. National Association of Realtors will bring us the first when they post their Existing Home Sales report at 10:00 AM ET. As with its sister report (today’s New Home Sales), this data will also give us a measurement of housing sector strength demand but tracks resales of existing homes in the U.S. Current forecasts are calling for a decline in home sales between March and April. Ideally, the bond market would prefer to see a large decline, indicating housing sector weakness. A large increase in sales could lead to bond weakness and a slight increase in mortgage rates tomorrow morning since a strengthening housing sector raises optimism about general economic growth.
The day’s other two events will come during afternoon trading. One is the minutes of the last FOMC meeting. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation or concerns regarding economic growth. The goal is to form opinions about the Feds next move regarding interest rates, which is expected to happen at an upcoming FOMC meeting. Since the minutes will be released at 2:00 PM ET, if there is a market reaction to them it will be evident during mid-afternoon trading tomorrow.
Also tomorrow afternoon is the first of this weeks two Treasury auctions that are worth watching. The Fed will auction 5-year Notes tomorrow and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. On the other hand, strong sales usually make bonds more attractive to investors, bringing more funds into bonds. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during early afternoon hours tomorrow and Thursday.
©Mortgage Commentary 2017