Mortgage rates went into the long holiday weekend in an uneventful manner last Friday. The day began with lenders publishing similar loan pricing to what we saw on Thursday. Things started to look up for rate watchers when stocks sold off because it led investors to reallocate their funds into risk averse U.S. Treasuries which helped push mortgage-backed security prices from their lows of the day and allowed a few lenders to reprice for the better. Unfortunately, as is common practice before a long weekend, most lenders were not aggressive about passing along new rate sheets with lower mortgage rates after MBS prices rallied. That means we were due today!

The holiday shortened week ahead offers a healthy dose of economic data with the most important scheduled event taking place on Friday morning: The Employment Situation Report. There are a few other key economic indicators to discuss before Friday though, starting with the release of the ISM Manufacturing Index and Construction Spending data this morning. 

The ISM Manufacturing Index is based on a survey conducted by the Institute for Supply Management. It covers more than 300 manufacturing firms and reports on their feedback of business conditions.  Readings above 50 indicate economic expansion or improving conditions while readings below 50 indicate economic  contraction or deteriorating conditions.   The ISM index has held above 50 for the last nine months with last month’s report registering the highest print in over 6 years at 60.4.   Economists surveyed prior to today’s release expected a slight pullback to 59.0.   The report indicated business conditions came in better than expected with a read of 59.7. The Employment Index was at its best level since May 2004!

Here is a recap of the data:

The only other economic report released today was April Construction Spending.  This data shows the monthly change in the amount of money spent on construction for public and private residential and non residential projects. Increasing construction spending is a positive economic indicator as it could lead to additional job creation and increased consumer spending on items needed to complete construction projects.  This report has a two month lag so it generally does not affect the market.

Overall construction spending, which includes public and private outlays, increased by the 2.7% to a seasonally adjusted annualized rate of $869.1 billion. This follows a revised for the better 0.4% uptick in March, which was originally reported as a 0.4 percent rise. Private residential construction grew 4.4% at a seasonally adjusted annual rate of $263.0 billion in April.  This was better than economist forecasts but not unexpected. READ MORE

Here are the highlights for the rest of the holiday shortened week:

Wednesday

• MBA Applications Index (low impact). Normally this data is paid little attention by market participants, however the housing market is under a great deal of scrutiny at the moment because of the expiration of the tax credit. If housing continues to trend downward, this data release could become a blip on the radar of traders.
• Pending Home Sales (low to medium). Like Construction Spending, this report has a two month lag so the data will represent pending sales made in April. Because we already know that home sales rose ahead of the tax credit's expiration, this report is not expected to be a major market mover.

Thursday

• ADP Employment Report (medium impact). This data is not as influential as the official Employment Situation Report but it does provide market participants with a sneak peak of the health of the labor market. The farther away this number is from expectations, the more important it will be to investors.
• Productivity and Costs (medium impact)
• Jobless Claims (low to medium impact)
• Factory Orders (low to medium impact)
• ISM Non-Manufacturing Index (medium impact)
• Announcement from the Department of Treasury of the term of next week’s auction of 3 year notes, 10 year notes and 30 year bonds.  The additional supply of debt on the market can pressure both Treasury yields and Mortgage rates higher.  (medium impact)
  

Friday

• The Employment Situation Report (HIGH IMPACT). Economists anticipate 513,000 jobs were created last month following last month’s better than expected 290,000 increase.
  

 CONSENSUS ESTIMATES AND MORE DETAIL ABOUT THE WEEK AHEAD

It was a very volatile day in financial markets. Stocks moved lower then higher then lower again. This led benchmark Treasuries on a roller coaster ride. Fortunately stocks finished the day close to the same spot they began it and no lenders repriced for the worse.

Reports from fellow mortgage professionals indicate lenders have passed the gains they withheld on Friday, rate sheets have improved.  The par 30 year conventional rate mortgage is back in the 4.625% to 4.875% range for well qualified consumers.  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.  For consumers with lower FICO scores and/or higher loan to values, you should consider a FHA loan which offers comparable rates but with higher costs. 

I continue to favor locking as mortgage rates are near the lows of the year and all-time lows.   If you wish to float in hopes of further gains, keep an eye on stocks. If stocks rally, interest rates will tick higher. If stocks sell, interest rates will rally.