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  • Writer's pictureJenny Phung

Mortgage Market Update

We will get seven monthly and quarterly economic reports this week that may influence mortgage rates, in addition to two Treasury auctions that have the potential to do so also. Tomorrow is the only day without something scheduled that we need to watch. The most important data comes later in the week, but the other reports carry enough significance to change mortgage rates also. It is safe to assume there will be a fair amount of movement in the markets and mortgage pricing this week.

October's Consumer Confidence Index (CCI) will start this week’s activities at 10:00 AM ET Tuesday. This Conference Board index helps us gauge consumer willingness to spend. It is expected to show a small decline from last month's 109.3 reading. That would mean surveyed consumers were less optimistic about their own financial and employment situations as they were last month. Good news for the bond market would be a noticeable decline because waning confidence usually translates to weaker consumer spending levels, which makes up over two-thirds of our economy. Current forecasts are showing a reading of 109.0. The lower the reading, the better the news it is for mortgage rates.

September's New Home Sales data will also be posted at 10:00 AM ET Tuesday morning. This Commerce Department report covers the small percentage of home sales that last week's Existing Home Sales report didn't include. Forecasts show an increase in sales of newly constructed homes, but I don't see this report having much of an impact on mortgage rates unless it shows a significant variance from forecasts.

Durable Goods Orders for September will be released at 8:30 AM ET Wednesday. It gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. Analysts are currently calling for a 0.8% decline in new orders for products such as airplanes, appliances and electronics. If we see an increase in orders, mortgage rates will probably rise as bond prices fall. On the other hand, a larger decline should be good news for the bond market and mortgage rates. This data can be quite volatile from month to month and is difficult to forecast. Therefore, a small variance in orders either way, likely will have little effect on Wednesday's bond trading or mortgage pricing.

Wednesday afternoon will bring us the first of the week's two Treasury auctions that have the potential to influence mortgage rates. 5-year Notes will be sold Wednesday followed by 7-year Notes Thursday. If these sales are met with a strong demand from investors, particularly Wednesday, bond prices may rise during afternoon trading. This could lead to improvements in mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. A lackluster investor interest may create selling in the broader bond market and lead to slight upward revisions to mortgage rates.

A major piece of data is set to be posted early Thursday morning when the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) is released at 8:30 AM ET. The GDP is considered to be the benchmark measurement of economic growth because it is the total of all goods and services produced in the U.S. Accordingly, it is likely to have a big impact on the financial markets and mortgage pricing. There are three versions of this report, each a month apart. Thursday's release is the first version and usually has the biggest influence on the markets. Current forecasts show the economy expanded at a 2.5% annual pace during the July through September months. If this report shows a noticeably smaller increase, I am expecting to see the bond market rally and mortgage rates fall. However, a much larger than expected rise could lead to bond selling and an increase in mortgage pricing.

Friday has the remaining three reports, beginning with September's Personal Income and Outlays at 8:30 AM ET that gives us an indication of consumer ability to spend and current spending habits. There also is an inflation reading in the data that the Fed heavily relies on. It is important to the markets because consumer spending makes up such a large part of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns that make long-term securities, such as mortgage-related bonds, less attractive to investors. Analysts are expecting to see a 0.1% decrease in income and a 0.4% rise in spending. Weaker readings would be good news for the bond market and mortgage pricing.

The 3rd Quarter Employment Cost Index (ECI) will also be released early Friday. This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.8%. A smaller than expected increase would be good news for mortgage rates, but this is not one of the more important reports of the week.

This week's last report comes at 10:00 AM ET Friday when the University of Michigan updates their Index of Consumer Sentiment for this month. This report is moderately important because it also helps us measure consumer confidence and willingness to spend. Current forecasts show this index remaining nearly unchanged from its preliminary reading of 71.4 posted two weeks ago. Good news for mortgage rates would be a sizable decline in the index, meaning consumers are likely to not spend as much in the near future.

Overall, Thursday is a good candidate as most active day for rates due to the GDP reading, but several days may see noticeable movement. The calmest day could end up being Tuesday. We should see rates move quite a bit this week with intraday revisions multiple days. If still floating an interest rate, and closing in the near future, it would be prudent to keep an eye on the markets.

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