• Jenny Phung

Mortgage Market Update

Updated: Mar 1


This week brings us the release of seven monthly or quarterly economic reports in addition to a couple of Treasury auctions that have the potential to influence rates. We also have two days of Fed congressional testimony to watch. Several of the reports carry enough significance to cause a noticeable change in rates. Hopefully, they will be weak enough to reverse the negative momentum we have recently seen in bonds and mortgage pricing. There is at least one event scheduled each day, making it likely to be another active week for rates.


January's Leading Economic Indicators (LEI) will start this week’s calendar at 10:00 AM ET tomorrow. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.4% increase, meaning that economic activity should expand moderately in the near future. A smaller increase would be good news for the bond market and mortgage rates. However, this data is not considered to be highly important, so a sizable variance from forecasts is needed for it to directly affect mortgage rates.


February's Consumer Confidence Index (CCI) will be posted late Tuesday morning. The Conference Board will also release this index that measures consumer confidence in their personal financial situations. If consumers are feeling good about their own financial and employment situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, related data is considered important in terms of gauging economic growth. It is expected to show an increase in confidence from the 89.3 reading in January. A lower reading than the forecasted 90.5 would be considered good news for bonds and mortgage rates as it would indicate consumers are less likely to make a large purchase in the near future than many had thought.


Also Tuesday morning is when Fed Chairman Powell delivers the first day of the Fed's semi-annual testimony on the status of the economy to the Senate Banking Committee. Market participants will watch his words very closely. The Fed is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what is said during this testimony. Look for him to address our employment situation, inflation, stock gains along with the pandemic and its impact on our economy. His testimony begins at 10:00 AM ET with a prepared statement that is then followed by Q & A with committee members.


That scenario will be repeated again Wednesday morning before the House Financial Services Committee. His prepared words are expected to be released prior to his actual appearance, so we could see a reaction early Tuesday morning. I am expecting to see the markets fluctuate Tuesday, possibly affecting mortgage rates noticeably also. The first day of testimony usually causes the most volatility because the prepared statement made by the Chairman on the second day often differs little from that of the first day.


Wednesday has a morning and afternoon event to watch. The first is January's New Home Sales report at 10:00 AM ET. This is the least important report of the week and is the sister report to last week's Existing Home Sales data. It also measures housing sector strength and mortgage credit demand but covers such a small part of all home sales. Therefore, it usually does not have a significant impact on bond trading or mortgage rates unless it shows a significant surprise. Wednesday's report is expected to show an increase in sales of newly constructed homes, hinting at strength in the new home portion of the housing sector. The smaller the number of sales, the better the news it is for bonds and mortgage rates.


In addition to this week's economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds more attractive to investors and brings more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during early afternoon hours.


January's Durable Goods Orders data early Thursday morning will give us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators, airplanes and autos are examples of these big-ticket items. Analysts are expecting to see a 1.2% increase in new orders, hinting at manufacturing sector growth. It is worth noting that this data is known to be quite volatile from month to month, so large swings are common and won't have as much of an impact as it would in many other reports.


Also early Thursday morning will be the first revision to the 4th Quarter Gross Domestic Product (GDP) reading. The GDP is considered to be the benchmark indicator of economic growth that comes in a preliminary version followed by two revisions one month apart. This is the second version of last quarter and is expected to be unchanged from the initial 4.0% annual rate of growth. Because bonds are more attractive to investors during times of economic weakness, the bond market and mortgage rates should improve if there is a noticeable downward revision.


Friday has the final two relevant economic reports, starting with January's Personal Income and Outlays report at 8:30 AM ET. This data gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for an increase in income of 9.5%, driven by economic stimulus payments that came during the month. Spending is expected to have risen 2.2%. Rising income means consumers have more money to spend. And stronger levels of consumer spending help fuel overall economic growth, making long-term securities such as mortgage-related bonds less attractive to investors. This report also contains a key inflation reading that the Fed relies on during their FOMC meetings. Accordingly, the weaker the readings, the better the news it would be for mortgage rates.


The University of Michigan's revision to their Index of Consumer Sentiment for February will close out the week's calendar late Friday morning. Forecasts show this index coming in at 76.4. It is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but it is not considered to be a major market mover. A large decline would be considered good news for rates.


Overall, the most important day for rates is Tuesday due to the Fed testimony, but it is possible to see rates move noticeably multiple days this week. No day stands out as best candidate for calmest with so much scheduled. Bond yields and mortgage rates have spiked higher this month for reasons that are not exactly clear. A few reminders from this week’s data that the economy is far from where it should be could help us recover a good portion of those losses. On the other hand, stronger results could add another level of weakness in bonds, driving yields and mortgage rates higher.

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