Market Commentary

Updated on February 26, 2020 10:19:11 AM EST

January's New Home Sales was posted at 10:00 AM ET, revealing a 7.9% spike in sales of newly constructed homes. This was the highest number of sales in almost 12 years. That jump, along with an upward revision to December's sales, indicates the new home portion of the housing sector was stronger than many had thought. While that is bad news for bonds and mortgage rates in theory, the fact is that this report covers only approximately 10% of all home sales in the country. Therefore, it has had a minimal impact on today's trading and mortgage pricing.

We also have the 5-year Note auction taking place today that may influence rates slightly this afternoon. When these sales go poorly, we often see broader selling in the bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds attractive to investors and bring more funds into the bond market. With so much volatility in the markets this week, it is difficult to predict what kind of interest there will be in the securities. Results will be posted at 1:00 PM ET, meaning if there is a reaction, it will come during early afternoon trading. The process will repeat itself tomorrow for the 7-year Note sale also.

Tomorrow morning has two relevant economic reports set for release, one of which is considered to be highly important. That would be January's Durable Goods Orders data at 8:30 AM ET. It will give us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators, airplanes and autos are examples of these big-ticket items. Analysts are expecting to see a 1.2% decline in new orders, hinting at manufacturing sector weakness. It is worth noting that this data is known to be quite volatile from month to month, so large swings are common and won't have as much of an impact as it would in many other reports.

Also early tomorrow morning will be the first revision to the 4th Quarter Gross Domestic Product (GDP) reading. The GDP is considered to be the benchmark indicator of economic growth that comes in a preliminary version followed by two revisions one month apart. This is the second version of last quarter and is expected to be unchanged from the initial 2.1% annual rate of growth. Because bonds are more attractive to investors during times of economic weakness, the bond market and mortgage rates should improve if there is a noticeable downward revision.

 ©Mortgage Commentary 2020

 

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