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  • Writer's pictureJenny Phung

Mortgage Market Update

This week has four monthly economic reports for the markets to digest in addition to the Fed Beige Book and two congressional appearances by Fed Chairman Powell. Two of those four releases are considered to be highly important that can heavily affect the markets. The week starts light with nothing scheduled tomorrow, but it is very likely that this will be an active week for the financial markets and mortgage pricing. Chairman Powell will kick-off this week’s activities Tuesday morning when he speaks before the Senate Banking Committee as part of the Coronavirus Aid Act. He is scheduled to appear at 10:00 AM ET, but he often releases his prepared statement before actually starting his testimony. The markets listen carefully anytime he speaks publicly, especially during congressional testimony. That means this event has the potential to be a market-mover, causing noticeable volatility in the financial and mortgage markets. He will do the same before the House Financial Service committee Wednesday morning. Also late Tuesday morning is the release of November's Institute for Supply Management's (ISM) manufacturing index. This index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. Current forecasts call for a decline in sentiment from October’s reading, which was announced as 59.3. A weaker reading than the expected 57.8 would be good news for the bond market and mortgage rates. Anything above 50.0 means that more surveyed business executives felt business improved during the month than those who felt it had worsened. The lower the reading the better the news it is for bonds because waning sentiment indicates a slowing manufacturing sector and makes broader economic growth less likely. Wednesday brings us November's ADP Employment report at 8:15 AM ET. This report has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. It tracks changes in private-sector jobs using the company's payroll processing clients as a base. While it does draw attention, it is my opinion that it is overrated and is not a true reflection of the broader employment picture. It also is not very accurate in predicting results of the monthly government report that follows a couple days later. Still, because we sometimes see a noticeable reaction to the report, it is on this week's calendar. Analysts are expecting to see 400,000 new private-sector payrolls last month. A weaker number would be good news for mortgage rates. The Federal Reserve's Beige Book will be released at 2:00 PM ET Wednesday. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by Fed region through business contacts. Since the Fed uses this info during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises. Of particular interest is information regarding inflation, unemployment or future hiring. If there is a reaction to the report, it will come during mid-afternoon trading. Thursday only has the weekly unemployment update for us to be concerned with. Friday has two reports scheduled, one of which is considered to be extremely important and highly influential to the financial and mortgage markets. That would be November’s Employment report at 8:30 AM ET, which is comprised of many employment statistics and readings. The most watched are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts call for the unemployment rate to have been 6.8% while 500,000 new jobs were added back to the economy. The income reading is forecasted to show an increase of 0.1%. The ideal scenario for mortgage shoppers would be a higher unemployment rate, a much smaller increase in payrolls (or a decline) and no change in the earnings reading. If we hit the trifecta with all three, we should see bond prices rise and mortgage rates move noticeably lower Friday. However, stronger than expected readings may fuel bond selling that would lead to higher mortgage rates. October's Factory Orders report will close out this week’s calendar late Friday morning. This Commerce Department report is similar to the Durable Goods Orders report that was released last week, except this one includes new orders for both durable and non-durable goods. It usually doesn't have a significant influence on bond trading since a good portion of the data has previously been made public. Analysts are expecting to see a 0.8% rise in new orders. Favorable news would be a weaker reading because it would signal softer than expected manufacturing sector activity. However, the Employment report will draw all the attention Friday, limiting the importance of this one even more than usual. Also worth noting about rates is the Adverse Market Fee that the Federal Housing Finance Agency (FHFA) will begin imposing Tuesday. The FHFA supervises Fannie Mae and Freddie Mac, who are the entities that buy a significant number of residential home loans from mortgage lenders to keep the mortgage market liquid. The new fee of .5% of the loan amount will be added to all refinances over $125,000 sold to either entity starting this week. While this is technically charged to the originating lender that sells the loan, it will undoubtedly be passed on to the borrower in their pricing sooner or later. This fee will apply only to refinances (not purchase transactions) that qualify under conforming loan limits. Some lenders may have already imposed the fee into their recent pricing while others may actually be absorbing it for the time being. If still shopping for a mortgage rate, it would be prudent to verify which scenario is applicable to you. Overall, Friday is the best candidate for most important day for rates due to the Employment report being released, but we should see noticeable movement in pricing multiple days. The calmest day may Thursday unless there is a big surprise in the weekly unemployment figures. With such a busy week, watching the markets carefully would be a good idea if still floating an interest rate and closing soon.

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