Mortgage Commentary

[Adam in CO]

Thursday’s bond market has opened in positive territory following the release of this morning’s manufacturing data. The stock markets are showing losses with the Dow down 33 points and the Nasdaq down 6 points. The bond market is currently up 8/32, which with yesterday’s afternoon gains should improve this morning’s mortgage rates by approximately .250 of a discount point.

The Commerce Department posted September’s Durable Goods Orders early this morning, showing a whopping 7.8% increase in new orders for big-ticket items. This was the largest monthly jump since June 2000, but detailed reading of the data actually points to more bond friendly data. The large jump in new orders is being attributed to a 183% spike in orders for aircraft and transportation equipment. If orders for those more volatile components are removed, new orders actually rose only 0.1% when expected to rise 1.0%. This means that if the volatile transportation related orders are excluded, the manufacturing sector was actually much weaker than thought. This is great news for the bond market and mortgage rates.

Also posted this morning was weekly unemployment claims and September’s New Home Sales. The unemployment figures showed that 308,000 new claims were filed last week, exceeding forecasts of 300,000. The home sales report showed that purchases of new homes rose over 5% last month, greatly exceeding forecasts of nearly no change in sales. Neither of these reports are considered to be of high importance to the markets and have not influenced bonds or mortgage rates this morning.

Yesterday’s positive reaction to the FOMC meeting led to an afternoon shift to float recommendations across the board in an effort to capture this morning’s improvements in rates. This morning’s data along with market reaction leads me to think more improvements may be coming for bonds and mortgage pricing. Accordingly, I am holding the float recommendations for all periods for the time being.

Tomorrow morning brings us the last two reports of the week. The first is likely to have a major impact on the financial markets and mortgage pricing as it is the single most important report we see each quarter. It is the preliminary version of the 3rd Quarter Gross Domestic Product (GDP). The GDP is considered to be the benchmark measurement of economic growth because it is the sum of all goods and services produced in the U.S. There are three versions of this report, each a month apart. Tomorrow’s release is the first and usually has the biggest impact on the markets. Current forecasts call for an increase of approximately 2.1% in the GDP.

The week’s last report comes at 10:00 AM ET tomorrow when the University of Michigan updates their Index of Consumer Sentiment for this month. Current forecasts show this index rising slightly from this month’s preliminary reading of 92.3. This index is important because it helps us measure consumer confidence, which is believed to indicate consumers’ willingness to spend. But, because of the importance of the earlier GDP release, it may not cause much movement in mortgage rates tomorrow.