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  • Writer's pictureJenny Phung

Mortgage Market Update

This week brings us the release of six monthly economic reports that have the potential to influence mortgage pricing. Some of those releases are considered to be highly important to the financial and mortgage markets. In addition to the data, we also will be watching the stock markets for direction. The data scheduled this week can make it an active week for the bond and mortgage markets on their own. If we see more of last week’s volatility in stocks, it sure is going to be another crazy week for mortgage rates. It starts off light with nothing of importance scheduled for tomorrow or Tuesday. The calendar will start early Wednesday morning when he Commerce Department posts January's Retail Sales data. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched quite closely. If Wednesday's report reveals weaker than expected retail-level sales, the bond market should thrive and mortgage rates will fall since it would be a sign that the economy is not growing as quickly as many had thought. However, a stronger reading than the 0.2% increase that is expected could lead to higher mortgage rates Wednesday morning. Also at 8:30 AM ET Wednesday will be the release of January's Consumer Price Index (CPI). This index measures inflationary pressures at the consumer level of the economy. Its results can have a significant impact on the financial markets, especially on long-term securities such as mortgage-related bonds. There are concerns that inflation is starting to gain steam, so all related data is being watched very closely. Current inflation readings will influence the Fed's decisions regarding rate increases. The report is expected to show a 0.3% increase in the overall index and a 0.2% rise in the more important core data that excludes more volatile food and energy prices. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall, assuming the Retail Sales report doesn't show surprising results. Thursday also has two monthly reports set for release. The first is January’s Producer Price Index (PPI) at 8:30 AM ET. It is the sister report to Wednesday’s CPI, but measures inflationary pressures at the producer level of the economy. As with the CPI, there are two headline readings. The core data is more important to market participants than the overall reading because it excludes more volatile food and energy prices. They are expected to show an increase of 0.3% in the overall reading and a 0.2% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about future inflation that make long-term securities less attractive to investors. January's Industrial Production data will be released mid-morning Thursday. It helps us measure manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.2% increase in production levels from December to January. A decline in output would be good news for bonds and mortgage pricing. Next up is January's Housing Starts early Friday morning. This report gives us an indication of housing sector strength and mortgage credit demand by tracking new housing construction starts. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for an increase in construction starts of new housing. A weak housing sector makes broader economic growth less likely in the near future, which makes bonds more attractive to investors. Therefore, the smaller the number of starts, the better the news it is for mortgage rates. The final report of the week will be February's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets because consumer spending makes up over two-thirds of the U.S. economy. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to show a 95.5 reading, down slightly from January's final reading of 95.7. That would indicate consumers were nearly as optimistic about their own financial situations than last month. Ideally, we would prefer to see a large decline in this reading. Overall, the most important day of the week, assuming stocks avoid a massive sell-off or rally, will probably be Wednesday with two important reports set for release. Thursday could be noticeably active also. That said, any day can be a major day if stocks get as volatile as they were last week. This would have been a pretty active week for mortgage rates even if stocks weren’t a concern, so please maintain contact with your mortgage professional if still floating an interest rate.

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