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  • Writer's pictureJenny Phung

Mortgage Market Update

This holiday-shortened week has eight monthly and quarterly economic reports set for release that may influence mortgage rates in addition to a Treasury auction. All of the economic reports come over just three days due to the holiday. None of them are considered to be key pieces of data but several carry enough importance to cause a noticeable change to mortgage pricing if they show surprises.

November's Leading Economic Indicators (LEI) from the Conference Board will start this week's calendar late tomorrow morning. The LEI attempts to measure or predict economic activity over the next three to six months. It is expected to show a 0.9% increase, meaning that it is predicting fairly strong economic growth over the next several months. This probably will not have much of an impact on bond prices or affect mortgage rates either unless it shows a much stronger reading. The weaker the reading, the better the news it is for bonds and mortgage pricing.

Tuesday doesn’t have any relevant economic data scheduled but does have a 20-year Treasury bond auction taking place. Results will be posted at 1:00 PM ET, making this an early afternoon event. A strong demand for the securities could help improve bonds and lead to slightly lower mortgage rates. However, if investor interest in the sale was lackluster, we could see bonds weaken and mortgage rates move higher Tuesday afternoon.

Wednesday has three reports we will be watching. First will be the second revision to the 3rd Quarter Gross Domestic Product (GDP) reading at 8:30 AM ET. The GDP is the total of all goods and services produced in the U.S. and the benchmark reading of economic growth. Although, this report likely will not have an impact on mortgage rates unless it varies greatly from its expected reading. Last month's first revision showed that the economy grew at a 2.1% annual pace during the quarter. This month's update is expected to show the same rate of growth. A revision higher would be considered bad news for bonds. But since this data is quite aged at this point and 4th quarter numbers will be posted next month, this release likely will not affect Wednesday's rates.

The Conference Board will post their Consumer Confidence Index (CCI) for December at 10:00 AM ET Wednesday. This is a moderately important release because it measures consumer willingness to spend. If consumers are more confident about their personal financial and employment situations, they are more apt to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely by market participants and can affect mortgage rate direction. Current forecasts are calling for a rise in confidence from November's reading of 109.5, meaning consumers felt a little more optimistic about their own financial situation than they did last month. The lower the reading, the better the news it is for bonds and mortgage pricing.

Wednesday's third report will come from the National Association of Realtors, who will release November's Existing Home Sales data at 10:00 AM ET. It is expected to show there was an increase in home resales last month, indicating a strengthening housing sector. A sizable decline in sales would be considered positive for bonds and mortgage rates because a softening housing market makes broader economic growth more difficult.

Following the three reports released Wednesday, we will get four monthly reports Thursday morning before the markets close for the Christmas holiday. They start with November's Personal Income and Outlays data at 8:30 AM ET. It tracks consumer ability to spend and current spending habits. Since consumer spending makes up such a large part of the U.S. economy, any related data usually has an impact on the markets and mortgage pricing. Current forecasts are calling for a 0.5% rise in income and a 0.6% increase in spending. This report also includes the Fed's preferred inflation reading (PCE index), helping to elevate the report's importance. If it reveals weaker than expected readings, we should see the bond market improve and mortgage rates drop slightly Thursday morning.

Also early Thursday is November's Durable Goods Orders report that gives us an important measurement of manufacturing sector strength by tracking orders for big-ticket items or products that are expected to last at least three years. Examples are appliances, airplanes and electronics. Analysts are expecting the report to show a 1.5% rise in new orders, indicating manufacturing growth. A noticeably smaller increase in new orders would indicate that the sector was weaker than many had thought. That would be good news for the bond market and should help push mortgage rates lower. It is worth noting though, this data is known to be quite volatile from month-to-month though, meaning it is not unusual to see large headline numbers in it. A moderate variance in this report will not have the same impact on trading as it would in many other reports.

New Home Sales data for November will be posted at 10:00 AM ET Thursday, which gives us a measurement of housing sector strength and mortgage credit demand. It is the sister report of Wednesday's Existing Home Sales report but covers a much smaller portion of the housing market and carries less significance. A weakening housing sector is considered good news for the bond market and mortgage rates. Since bonds tend to thrive in weaker economic conditions, a large decline in sales would be considered favorable for bond prices and mortgage rates. Current forecasts are calling for a higher number of sales than October.

The final report of the week will be the revised University of Michigan Index of Consumer Sentiment for December at 10:00 AM ET. Forecasts are calling for a reading of 70.4, unchanged from the initial estimate that was announced earlier this month. This means surveyed consumers felt the same about their own financial and employment situations than previously estimated. Bond traders would prefer to see a large decline because waning confidence usually means consumers are less likely to make a large purchase in the near future, restricting economic growth. Therefore, the lower the reading, the better the news it is for mortgage rates.

This weekend’s Christmas Day holiday is going to alter trading for the markets at the end of the week. Stocks trade a full day Thursday, but bonds will close at 2:00 PM ET. All the markets will be closed Friday in observance of Christmas Day and will reopen for regular trading Monday morning. We sometimes see pressure in the bond market ahead of the long weekends as traders look to protect themselves from headlines during the extended closing. That scenario can create some additional pressure in bonds and possibly mortgage rates.

While we may see movement in rates every day, the best candidate for most active day is Thursday due to the importance of that day’s releases. Tuesday may end up being the calmest day unless something unexpected happens. Weekend Omicron news and apparent failure of President Biden’s Build Back Better plan could help start the week tomorrow with lower yields and mortgage pricing.

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