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  • Writer's pictureJenny Phung

Mortgage Market Update

Updated: Mar 8, 2021

This week has six monthly and quarterly economic reports scheduled for release that may influence mortgage rates. Two of those reports are extremely important to the financial and mortgage markets. There is at least one item that may affect rates scheduled each day except Tuesday. It starts off with one of the highly important reports and closes with the other. In between are several moderately important releases.

Activities kick-off tomorrow with the Institute for Supply Management's (ISM) manufacturing index for February at 10:00 AM ET. This index measures manufacturer sentiment and can have a pretty heavy impact on the financial and mortgage markets if it varies from forecasts. It is expected to show little change from January's 58.7. A reading above 50.0 means more surveyed manufacturers felt business improved during the month than those who felt it had worsened. A sub-50 reading is considered a recessionary sign. If we see a weaker than expected reading, the bond market should respond favorably since it would be a sign of economic weakness. One of the reasons this data is considered so important is the fact that it is usually the first monthly report posted that covers the preceding month. It is traditionally posted the first business day of the month, allowing for a current snapshot of conditions in the manufacturing sector.

Wednesday has an early morning report and an afternoon release that we will be watching. The first comes at 8:15 AM ET from payroll processor ADP who will announce their monthly private-sector employment prediction. Since it is not a government agency report, it isn't considered to be highly important. However, as with any employment-related data, it does draw some attention. This is especially true for this report because it is posted just a couple days before monthly employment figures are released by the Labor Department. I personally believe it is given more attention than it deserves, particularly because many rely on it to predict the monthly government figures, often without success. Still, if it shows a noticeable variance from expectations, it will likely cause movement in the markets and mortgage rates. Forecasts are calling for it to show 150,000 new private-sector payrolls.

The Fed Beige Book is the afternoon release. This report details economic activity throughout the country by Federal Reserve region via business contacts. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during mid-afternoon trading Wednesday. It usually does not cause a major move in the markets or mortgage rates. If we see a reaction, it will come during mid-afternoon hours.

Next up is the revised Productivity Index for the 4th Quarter of last year early Thursday morning. Analysts are expecting to see a decline of 4.8% in output. Employee productivity is watched fairly closely because a higher level of output per hour is believed to mean that the economy can expand without inflation concerns. This release also includes a labor costs reading that can be quite influential if it shows a surprise. Since this data is quite aged now, it likely will have little impact on mortgage rates unless it shows a significant change.

December's Factory Orders data is set to be released late Thursday morning. This report is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength but includes new orders for both durable and non-durable goods. It is not one of the more important reports we get each month. Analysts are expecting a 1.9% rise in new orders, indicating strength in the manufacturing sector. The bond market would like to see a large decline, meaning that manufacturing activity was weaker than many had thought.

The biggest economic news of the week comes early Friday morning when one of the single most important monthly reports we see will be posted. That would be February's Employment report at 8:30 AM ET Friday. 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 change in earnings. Current forecasts are calling for no change from January's 6.3% unemployment rate, approximately 190,000 new jobs added to the economy and a 0.2% rise in earnings. Stronger than expected readings would be bad news for bonds that may cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers should contribute to lower mortgage rates.

Overall, it is safe to assume that we will have another very active week in the markets ahead of us. We saw chaos in the bond market last week with multiple days of heavy selling and intraday rate increases capped by a significant rally Friday. Hopefully, the recent selling in bonds is now behind us, meaning we would see bond yields and mortgage rates start to trend lower. Don’t be surprised to see some pressure in bonds tomorrow morning prior to the ISM release following such a sizable rally Friday, but unless something unexpected happens we still should see rates lower than Friday’s early pricing. That said, if still floating an interest rate and closing soon, it would be prudent to keep an eye on the markets because the volatility may not be over.

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