September 18th, 2017
This week brings us the release of only three monthly economic reports, none of which are considered to be highly important. The main focus of the week will be the Federal Reserve and their mid-week events. We can expect to see some portfolio positioning as that day comes closer, meaning the next couple of days could still bring changes to mortgage rates despite the lack of important data.
August’s Housing Starts will start this week's activities early Tuesday morning. It tracks groundbreakings of new home projects but likely will not affect mortgage rates unless its results vary greatly from forecasts. It is expected to show that starts of new homes rose last month, indicating strength in the housing sector. That is bad news for the bond market and mortgage rates because a stronger housing sector makes broader economic growth more likely. However, this data is not important enough to cause a noticeable change in mortgage rates unless there is a wide variance between forecasts and the actual results.
Next up is August’s Existing Home Sales from the National Association of Realtors that will be posted late Wednesday morning. This report will give us another indication of housing sector strength by tracking home resales in the U.S. It is expected to show a slight increase from July’s sales. Good news would be a sizable decline in sales.
The big events of the week will come from the Fed Wednesday afternoon. They start with the FOMC meeting that probably will not yield an increase in key short-term interest rates. It will adjourn at 2:00 PM ET. There is a small chance of the Fed raising rates at this meeting but the consensus is that they will not. What will be of interest is verbiage in the post-meeting statement that may hint when the Fed will make their next move. Analysts and traders will also be looking for changes to the Fed's massive balance sheet. Rapid selling of holdings is bad for bonds and mortgage rates.
Also at 2:00 PM ET Wednesday, the Fed will release their revised economic projections for the U.S. The markets are interested in whether Janet Yellen and friends think economic conditions will be stronger or weaker in the coming months and years than previously thought. Key readings the markets will be looking for are the unemployment rate, inflation and overall GDP growth. Downward revisions by the Fed will be good news for bonds and mortgage pricing because it would mean another bump to key short-term interest rates before the end of the year may not be a sure thing after all. On the other hand, upward revisions that indicate the economy is likely to support a Fed rate hike could cause bond selling and an increase to mortgage rates.
The adjournment, post-meeting statement and economic projections will be followed by a press conference with Fed Chair Yellen at 2:30 PM ET. All Fed meetings are highly important, but this one is particularly significant for the financial and mortgage markets due to the uncertainty of when the Fed will make another monetary policy move and unwind their current holdings. Analysts and market traders will be watching her words carefully for any indication on the likelihood of a rate hike later this year (assuming one was not made at this meeting). Any question or answer at the press conference can impact the markets, so there is a decent chance of seeing quite a bit of volatility Wednesday afternoon.
The final report of the week will come from the Conference Board who will post their Leading Economic Indicators (LEI) for August late Thursday morning also. The moderately important LEI index attempts to measure economic activity over the next three to six months. It is expected to show a 0.2% increase, meaning that it is predicting modest growth in economic activity over the next several months. A larger increase would be considered negative news for bonds and could lead to a small increase in mortgage rates Thursday.
Overall, Wednesday is clearly the most important day of the week, particularly the afternoon hours. Friday is the best candidate for calmest day for mortgage rates. I believe we are going to see a fair amount of volatility in the markets and mortgage pricing this week. Therefore, please proceed carefully if still floating an interest rate and closing in the near future