Mortgage Rates this week and you

Last Week:
Rates were up just slightly for the week by .125 to .250 depending on the lender. Pricing has steadily backed up through October and taken us back to rates last seen briefly Mid-September and Late August.
The 10-year TSY ended the week testing the high end of the range that has not been broken for over 60 days, while stocks were flat for the week after running up the previous two weeks. With stocks flat last week, but bond yields up - most of this can be attributed to bond trader hedging against the treasury auctions coming up this week. This has been the trend each week prior to these record bond auctions held by the Treasury. If the trend we have witnessed holds, we could see some relief in bond yields later this week as long as the auctions go well - as expected.
We had mostly good news from housing market data last week that suggested that housing appears to be finding stabilization.
First, last week, the Fed Beige book listed residential real estate as leading the more positive sectors across the Fed Districts - along with Manufacturing, which were the two hardest hit sectors in the early part of the recession.
Later in the week, the Existing Home Sales report surprised the street by leaping 9.4% in September (to 5.57 million annualized units) - the highest sales rate in over two years. Prices seem to be firming and the report showed inventory dropping to 7.8 months - the lowest inventory number in almost 3 years (not including short sale and foreclosure dispositions).
The rest of the economic news last week was mostly positive and suggest the economy is slowly healing, while new unemployment claims last week was slightly higher than expected and will continue to drag on the recovery. Inflationary pressures still remain subdued as well.
Rate Forecast:

With rates at multi-year or near historic and all-time lows, it's tough to expect that they have considerable space to decline much from here , especially in the face of a modestly improving economic climate and improving corporate earnings picture.
Rates that were lower earlier this year were fueled by an apocalyptic economic state and near-term view forward. While this has improved, investors lack of appetite to take risks, weak economic growth, and the low near-term prospects for inflation should serve to keep a lid on any serious increases, too. The bleakness of Spring drove rates down; the euphoria of Summer (and inflation worries) drove them back up. The Autumn seems to have a sense of reality about it, and an improving sense of optimism about tomorrow's economic prospects. And, as we showed you going into the fall - there is a well established trend of mortgage rates "falling in the fall".
Somewhere between those two extremes of Spring and Summer is where we'll probably find ourselves for the remainder of the fall. That being the case, we expect mortgage rates to likely wander in a range from about 5.00% to 5.50% on the Conv. 30-year fixed, but to be choppy in that range as the stock and bond markets search for new trend line.
The Week Ahead:
This week brings us the release of seven relevant economic reports and two important Treasury auctions for the bond market to digest. There is relevant data or events scheduled every day except Monday, so there is a pretty good chance of seeing noticeable movement in mortgage rates several days this week.
Overall, it will likely be an active week for the markets and mortgage rates. We believe that the single most important day will probably end up being Thursday with the extremely important GDP release in the morning and the Treasury auction results during afternoon hours. Monday should be the calmest day of the week, but Tuesday, Wednesday and Friday should also be active. Accordingly, I strongly recommend staying close to our emails/alerts.
This week also has Treasury auctions scheduled each day except Friday. However, the two that are most likely to influence mortgage rates are Wednesday's 5-year and Thursday's 7-year Note sales. If those sales are met with a strong demand, particularly Thursday's auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor demand may create bond selling and upward revisions to mortgage rates.

Tuesday:
The first report of the week is one of the more important ones. October's Consumer Confidence Index (CCI) will be posted late Tuesday morning. This Conference Board index gives us a measurement of consumer willingness to spend. It is expected to show a small increase in confidence from last month's 53.1 reading, indicating that consumers are a little more likely to make large purchases in the near fut ure than last month. As long as the reading doesn't exceed the forecasted 53.5, we will likely see the bond market react favorably to this report. This data is watched closely because consumer spending makes up two-thirds of the U.S. economy.

Wednesday:
Wednesday morning the Commerce Department will post Durable Goods Orders for September. This report gives us a measurement of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items. Analysts are currently calling for an increase in new orders of approximately 1.0%. If we see a larger than expected increase in orders, mortgage rates will probably rise as bond prices fall. A weaker than expected reading should be good news for the bond market and mortgage rates, but this data can be quite volatile from month to month and is difficult to forecast.

Also Wednesday is the release of September's New Home Sales. This data covers the remaining 15% of home sales that last week's Existing Home Sales report tracked and is this week's least important data. It is expected to show an increase in sales, but regardless of its results I am not expecting it to have a significant impact on mortgage rates Wednesday.< /p>
Thursday:
The next relevant data is the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) early Thursday morning. 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. and therefore is likely to have a major impact on the financial markets and mortgage pricing. There are three versions of this report, each a month apart. Thursday's release is the first and usually has the biggest impact on the markets. Current forecasts call for an increase of approximately 3.2% in the GDP. If this report shows a much smaller increase, we would expect to see the bond markets rally and mortgage rates to fall. However, a larger than expected rise could lead to bond selling and a sizable increase in mortgage pricing.

Friday:
There are three reports scheduled for release Friday. The first is the 3rd Quarter Employment Cost Index (ECI), which tracks employer costs for salaries and benefits. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.5%. A smaller than expected increase would be good news for bonds and mortgage rates.

September's Personal Income and Outlays report will also be posted early Friday. This data gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because consumer spending makes up two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to i nvestors. Analysts are expecting to see no change in income and decline in outlays of 0.5%.

The week's last report comes at 10:00 AM ET Friday w hen the University of Michigan updates their Index of Consumer Sentiment for this month. Current forecasts show this index rising slightly this month's preliminary reading of 69.4. This index is moderately important because it helps us measure consumer confidence, which is believed to indicate consumers' willingness to spend. Since consumer spending makes up two-thirds of the U.S. economy, any related data is considered to be relevant.