Mortgage Rates Nudged from Friday's Position, July 26, 2010

Mortgage Rate Trend Direction:     Neutral/Lower

Economic Reports/Impact:             New Home Sales, 10:00 AM ET, Moderate Rate Impact

Key News:                                          European Bank Stress Tests, US Companies Earnings

Summary

Last week ended calmly for mortgage rates with little actual movement.  This week will likely begin in a similar fashion. Only a few US companies will report earnings today and only one economic report is due to be released.  Analysts continue to review the results of the European bank "stress" tests.  Based on it being a Monday in the summer with little news, mortgage rates are likely to remain very close to their Friday closing position until news or data provide direction. Early indications are that the news and data will tend to nudge rates in a lower direction today.

Impact of economic reports

The June New Housing Sales report will be released at 10:00 AM ET and will give the most recent peek at the state of the home building industry.  With recent reports regarding the number of new permits issued at all-time lows, the next several new homes sales reports are likely to show steady declines.  While this is a sign of a weak economy it is also simply a reflection of the severity of the housing crisis we have and do face.  Foreclosures and short sales have added hundreds of thousands of homes to the sales inventory and lowered housing prices.  Neither homebuilders nor individual consumers are motivated to build new homes in such an environment.

Impact of international or political events

Reaction to the European bank stress tests continues to make news.  Many analysts are voicing their dissatisfaction with the methodology used in the tests, believing the exercise did not truly measure the impact on the banks of a default (failure to make debt payments) or near default of a European nation or nations.  While analysts on Friday appeared to give a "sigh of relief" when the stress test results appeared successful, Monday seems to bring out more critical voices. Ongoing reaction could move makets and mortgage rates.