I hope everyone had a safe Memorial Day weekend...now it’s time to get back to work. 

Onto the data for the week.

Tuesday

-           The first relevant report of the week is the S&P/Case-Shiller home price idex which tracks the monthly change in the price of homes in 20 metropolitan regions.   Many people believe that our current economic situation will not stabilize until home prices and supply begin to level.

The data release indicated that home prices still have yet to find a bottom as the report read a record 18.7% year over year decline.  S&P/Case Shiller went on to say there no evidence that a recovery in home prices is on the horizon.  I have spoken to many realtors who are starting to see some indication of improvement in housing with multiple offers on homes.  How is the housing in your area?  Are homes on your street on the market for 6, 9, 12  months?  How do you feel your home value is doing?  We must also keep in mind that many home sales happening now are foreclosures that are bought at very low prices which will exaggerate the downside in this report.  In addition, the month over month decline is showing signs of an easing in home price declines. 

-          The Conference Board released the monthly consumer confidence report this morning.  This is a survey of 5000 consumers from across our country of their attitude on present economic conditions and future expectations.   A confident consumer is much more likely to spend while a pessimistic consumer is much more likely to save.   Last month’s report indicated a much more positive consumer leading many to believe the end of the current recession is in sight.  Economists’ surveyed had expected this report to come in at 42 but the report has shown that the consumer is much more confident with a  reading of 54.9.  Apparently, high unemployment, declining home prices and oil on the rise is not suppressing consumer confidence.   On the release, the stock market has sprung legs and is in full rally, oil has moved off its lows of the day and MBS have moved into negative terroritory.

-          The first of 3 Treasury auctions will be held later today in the  form of $40b of 2 year treasury notes.  The actual auction is not as relevant as the release of the amount to be auctioned which happened last week.   Investors will watch the auction for the amount of interest from buyers, especially foreign/indirect bids.   The added supply of debt available for sale, will continue to pressure treasury yields higher.  Our benchmark 10 year treasury note is pushing a yield of 3.50% while just a month ago it was well under 3.00%!   The MBS Commentary blog will have complete coverage after the auction at 1pm eastern.

Wednesday

-           The weekly Mortgage Bankers Association purchase applications index which tracks the month to month activity of purchase applications at mortgage lenders.  Many economists believe our current recession will not end until housing picks up, so this report is becoming much more important.  Our government has been doing all they can to encourage low mortgage rates as an incentive to home buyers.   If you do not recall, the Fed has set aside $1.25trillion to buy mortgage backed securities (MBS) and to date have only spent $481billion.  Mortgage rates are set by the buying and selling of these assets in the secondary market.  Additionally, our government has offered tax incentives for first time home buyers in the form of up to a $8000 tax credit.   

-          Existing Home Sales will be released by the National Association of Realtors and expectations call for a annual pace of 4.670million.  Last month’s report showed a further decline in home sales to a 4.570million pace

        which was a 3.0% drop from the prior month.   This report gives a count of the total number of previously constructed homes, condos and co-ops that a sale closed during the month.

-          The US Treasury Department will auction of $35billion of 5 year treasury notes.   

Thursday

-           The US Department of Commerce will  release the monthly Durable Goods Orders report which tallies new orders placed with US manufactures for immediate and future delivery of factory hard goods.  An increase in this report will indicate future economic growth which would be positive for equities traders(stocks) and negative for fixed income investments (MBS and Treasuries).  Last month’s report indicated a decline of new orders of   -0.8% and economists’ surveyed are expecting a 0.0% reading this month. 

-          Weekly Jobless claims numbers will be released and expectations call for 635,000 first time claims for  unemployment insurance following last week’s 631,000 reading.   Continuing problems in the labor front will help to keep inflation in check which is positive for low mortgage rates.  With many people unemployed, consumer spending will likely be contained which will make it difficult for our economy to show signs of growth.

-          New Home Sales index which measures the number of newly constructed homes with a  committed sale during the prior month.  Last month’s report continued to show weakness with an annual pace of 356,000 and this month’s report is expected to show a slight increase to a yearly pace of 360,000.  With a glut of existing homes on the market, a lower reading on this report will be welcomed.   To give you an idea of how far housing has fallen, at the height of the real estate boom, new home sales in summer of 2005 reported an annual pace of almost 1.4 million units.

-          The last of the Treasury auctions for this week will occur with the auction of $26billion worth of 7 year Treasury notes. 

Friday

-           The Department of Commerce will release the first revised numbers to first quarter Gross Domestic Product which is the broadest measure of total economic activity.  Initial readings showed a contraction of -6.1% and economists’ surveyed are expecting a small improvement to -5.5%.   A worse reading would be positive for MBS.

-          Chicago PMI which is a survey of  business conditions around the Chicago area.  Readings below 50 indicate a contracting business sector while reading above 50 indicate a expanding sector.  Last month’s report showed continued contraction with a reading of 40.1 and economists’ surveyed are expecting a slight improvement to 42.0.

-          The Reuter’s/University of Michigan’s consumer sentiment index will be released which gives investors a gauge into how the typical US consumer feels about their own personal financial condition and attitude toward the economy.  Since our economy is driven by consumer spending, a optimistic consumer is much more likely to spend while a pessimistic consumer is more likely to save.   A higher reading is better for stocks, while a lower reading usually benefits MBS.  Last month’s report showed the consumer becoming more optimistic with a  reading of 67.9 which was slightly higher than the prior month’s 65.1.   Economists’ surveyed for this month’s report are expecting a continuation of the optimistic consumer with a reading of 68.0, albeit, just slightly more optimistic.   

Last week was not a good week for MBS.  In total, they lost ¾ of a point which increases consumer borrowing costs.  Most lenders started out last week with par 30 year conventional rates at 4.5% but by week’s end that rose to 4.625%.  If you missed it, North Korea over the weekend tested a nuclear bomb and fired a few short range missiles despite their pledge to end their nuclear ambitions.  International invents such as this quite often leads to a flight to quality bid where investors sell stocks and money the money into the safety of fixed income investments.   Apparently the very bullish consumer confidence numbers are over shadowing North Korea. 

Early reports from fellow mortgage professionals are indicating the par 30 year conventional rate mortgage to be at 4.625%.   In order to qualify for this rate you must have a FICO credit score 740 or higher, a loan to value at 80% or less and be willing to pay all closing costs associated with loan including 1 point loan origination/discount/broker fee.