The Week Ahead

I hope everyone had a safe and fun Thanksgiving Holiday break.

We have no economic data on the calendar for today but we do have some high impacting reports coming later this week.

Tuesday brings us three releases with Consumer Confidence for November being the most potentially impactful. An optimistic consumer is more likely to spend money which benefits corporate profits and stocks; while a pessimistic consumer is more likely to save or pay off debt which benefits bonds and low interest rates. Economists expect Consumer Confidence to show an improvement from last month’s 50.2 to 52.0. Bonds and mortgage rates would benefit with a lower than expected reading.

Our busiest day will be Wednesday. First out is the preliminary look into job growth with the release of the ADP Employment numbers. This will be followed by the revision to 3rd quarter Productivity and Costs which is expected to show an upward revision to productivity which is good news for bonds and mortgage rates. A more productive workforce keeps inflationary pressures at bay.

Our third report on Wednesday is the ISM Manufacturing Index. Most recent reports on manufacturing have shown noticeable improvements, with the exception of the NY Fed survey, which is positive for overall economic growth and stocks but negative for bonds and interest rates. A weaker than expected reading would be good news for consumers hoping for mortgage rates to decline further.

The most important day this week will be Friday when we get the single most important report we receive on a monthly basis. The Department of Labor will release the Employment Situation Report which is expected to show 130,000 jobs created last month and the unemployment rate holding steady at 9.6%. Last month’s report showed 151,000 jobs created and recent reading on the weekly jobless claims have indicated an improving jobs sector. Since our economy is driven by consumer spending, interest rates would benefit with a lower than expected number of jobs created and a higher unemployment rate.

Over the weekend, Ireland received a bailout and tensions between the Korea’s continue so we are getting a little bit of a flight to safety bid. This is when investors sell riskier stocks in favor of the safety of U.S. Treasuries. European stock markets are down well over 1% and our own stock market here has also opened well into negative territory. Typically on days with no data, bonds take their direction from stocks. If stocks move lower, money should flow into bonds and mortgage backed securities.

Thanks to the flight to safety bid, lender rate sheets are improved over last week. The par 30 year conventional rate mortgage is in the 4.375% to 4.625% range for well qualified consumers. There are a couple lenders offering 4.25%. To secure a par interest rate on a conventional mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, par is in the 3.75% to 4.00% range with similar costs but lower FICO score requirements.

I see no reason to lock today. MBS are well into the green, stocks are well into the red. Barring a late day rally in stocks, I favor floating all loans today. If stocks start to rally later, short term closings(consumers closing in less than a week) should consider locking later.