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  • Writer's pictureJenny Phung

Mortgage Market Update

This week brings us the release of five monthly or quarterly economic reports that have the potential to influence mortgage rates. It opens and closes with key reports for the markets to digest and in between is some moderately important data. With relevant data scheduled for release all but one day, we should see another active week for mortgage rates.

Starting the week's calendar of events will be the Institute of Supply Management's (ISM) manufacturing index for January at 10:00 AM ET tomorrow. This index tracks manufacturer sentiment by rating surveyed trade executives' opinions of business conditions. It is usually the first economic data released each month and is one of the very important reports we get monthly. Current forecasts are calling for a reading in the neighborhood of 60.0, which would be a small decline from December's reading of 60.7. The lower the reading, the better the news for the bond market and mortgage rates because weaker sentiment indicates a slowing manufacturing sector.

Next up is Wednesday's ADP Employment report at 8:15 AM ET. This release 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 not a true reflection of the broader employment picture. It also is not accurate in predicting results of the monthly government report that follows a couple days later. Still, because we see a reaction to its results, it is included in this week's calendar. Analysts are expecting to see 50,000 new jobs after December’s surprise decline of 123,000. Good news would be another decline in payrolls.

In addition to weekly unemployment claims, Employee Productivity and Costs data for the 4th quarter will also be released early Thursday morning. It can cause a change in the bond market but should have a minimal impact on mortgage pricing. If the productivity reading varies greatly from analysts' forecasts of a 2.8% decline, we may see a slight move in mortgage pricing. Higher levels of worker productivity are good news for the bond market because it allows the economy to expand while keeping inflation subdued.

December's Factory Orders data is set for release late Thursday morning. It is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is not one of the more important reports we get each month. However, it can influence mortgage pricing if it varies greatly from forecasts. Analysts are expecting a 0.7% rise in new orders, indicating a stronger manufacturing sector. The bond market would like to see a large decline, meaning that manufacturing activity was weaker than many had thought.

Friday has the biggest news of the week. Actually, it is arguably the most important report we get, period. The Labor Department will release the almighty Employment report for January at 8:30 AM ET. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a much smaller increase in payrolls than expected and little or no increase in earnings. Current forecasts are calling for no change in the unemployment rate of 6.7% and approximately 50,000 new jobs added to the economy while earnings rose 0.3%. Stronger than expected numbers will likely fuel a stock market rally and selling in bonds that would cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers would raise more concerns about the strength of economic recovery and likely lead to a noticeable improvement in mortgage pricing.

Besides the economic data this week, we also need to watch for movement in stocks. It is still considered corporate earnings season and there are a couple of big-named companies reporting their results this week. Generally speaking, good news for stocks is considered bad news for bonds and mortgage rates. If those earnings reports show disappointing results, stocks should retreat, drawing funds into bonds. This scenario can happen anytime but may be a little more prevalent this week than others.

Overall, Friday is easily the best candidate for most important day of the week due to the importance of the Employment report, although we could see plenty of movement in the markets and mortgage rates tomorrow also. The calmest day will probably be Tuesday unless something unexpected happens. Everything points towards another very active week for the markets and mortgage rates, so please keep an eye on them if still floating an interest rate and closing in the near future.

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