• Jenny Phung

Mortgage Market Update


This week brings us the release of five relevant monthly economic reports, two of which are considered to be highly important. In addition to the data, several Fed events may influence rates heavily midweek. The week will begin light with nothing of importance set for tomorrow.


February's Producer Price Index (PPI) will start this week’s activities at 8:30 AM ET Tuesday. This is the sister release of last week’s Consumer Price Index except it measures inflationary pressures at the producer level of the economy. There are two portions of the index- the overall reading and the core data. Rising inflation makes long-term investments, such as mortgage-related bonds, less attractive to investors and allows the Fed to be more aggressive with raising key short-term interest rates. The overall reading is expected to increase 1.0% while the core reading is forecasted to rise 0.6%. Weaker readings would be favorable for mortgage rates.


Wednesday has one highly important economic report scheduled for early morning and an afternoon of Fed events that will draw plenty of attention. February's Retail Sales data is the morning release. This data is extremely important to the financial markets because it measures consumer spending strength. Since consumer spending makes up over two-thirds of the U.S. economy, data that is related usually has a big impact on the markets. This month's report is expected to show a 0.4% increase in sales. If it reveals a decline, the bond market should react favorably, pushing mortgage rates lower. A larger than expected increase would signal economic strength and be bad news for mortgage rates.


The Fed events kick-off with the 2:00 PM ET adjournment of the two-day FOMC meeting. There is a strong consensus that Fed Chairman Powell and friends will make their first rate increase since late 2018 this week. What is being debated is the size of the increase with the majority of analysts predicting a .250 of a point bump in rates, followed by similar moves in the coming meetings. There are some that feel they may back a larger .500 increase this week to quickly slow inflation that is running at a 40-year high. Market traders will also be interested in the Fed’s future timetable for more increases and changes to their balance sheet. Hints that their balance sheet reduction will move at a quicker pace than previously thought would be taken as a negative for bonds and mortgage rates.


Along with the adjournment is the post-meeting statement. That is also when we will get the Fed's updated economic projections. Those events will be followed by a press conference with Chairman Powell at 2:30 PM. It is likely going to be a pretty active afternoon in the financial and mortgage markets.


Thursday has two monthly reports set for release, beginning with February's Housing Starts at 8:30 AM ET. This data gives us an indication of housing sector strength and mortgage credit demand by tracking newly issued permits and actual groundbreakings of new home construction. It is expected to show an increase in starts, pointing towards housing sector strength. Traders normally don't consider this report to be of high importance to the bond market, meaning it likely will have little impact on mortgage rates unless it reveals a large decline or increase.


Also Thursday morning will be the 9:15 AM ET release of February's Industrial Production report. It measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Forecasts are calling for a 0.5% rise from January's level. A decline would be considered favorable news for bonds and mortgage rates because it would indicate manufacturing sector weakness. Broader economic growth would be more difficult if manufacturing activity is slipping.


Friday has a single relevant economic report that we will be watching, February's Existing Home Sales report at 10:00 AM ET. The National Association of Realtors will give us this measurement of housing sector strength and mortgage credit demand. It is expected to reveal a decline in home resales, meaning the housing sector softened last month. Bond traders would prefer to see a large drop in sales, pointing towards a rapidly weakening housing sector. Bad news would be a sizable increase, indicating that the housing sector is gaining momentum. That could be troublesome for the bond market and mortgage rates because housing strength makes broader economic growth more likely.


Overall, Wednesday is likely to be the most active day for rates due to the Retail Sales report and FOMC schedule, but geopolitical news could bring noticeable movement any day. The calmest day could be Friday with just the housing report scheduled. There is a high probability of seeing plenty of movement in rates this week. Accordingly, keep an eye on the markets if still floating an interest rate and closing in the near future. We don’t have a lot to be concerned with this week in terms of relevant economic reports or other events that may influence rates. There are only three monthly reports in addition to a Treasury auction midweek that we will be watching. Headlines from Ukraine and stock swings are also likely to come into play, but they are unpredictable. The week starts off light with nothing scheduled tomorrow or Tuesday. We can expect stock movement and Ukraine news to drive trading the first part of the week.


First up on this week’s calendar is a housing report with the release of February's New Home Sales data at 10:00 AM ET Wednesday. The Commerce Department is expected to announce an increase of newly constructed homes last month. This report tracks a much smaller percentage of home sales than last week’s Existing Home Sales report did, so it should not have much of an influence on the markets and mortgage pricing. A larger than forecasted increase in sales would be negative for the bond market and mortgage pricing because it would signal economic strength.


This week's 20-year Treasury Note auction will also take place Wednesday. Results of it will be announced at 1:00 PM ET, making this an afternoon event for rates. If the sale draws a strong demand from investors, we could see bonds improve during early afternoon trading, possibly leading to a slight downward revision to mortgage pricing. On the other hand, weak interest in the securities could cause an upward revision to rates Wednesday afternoon.


Durable Goods Orders for February will be released early Thursday morning. It will give us insight into the manufacturing sector by tracking new orders at U.S. factories for big-ticket items such as electronics, refrigerators and airplanes. Analysts are expecting to see a 0.5% decline in new orders. It is worth noting that this data is known to be quite volatile from month to month, so large swings in the headline reading are common and won't be as meaningful as it would be in most other reports. Good news for mortgage rates would be a noticeably larger decline.


Friday's sole report comes from the University of Michigan at 10:00 AM ET. Their revised March Consumer Sentiment Index will give us an indication of consumer confidence, which hints at consumers' willingness to spend. Rising confidence is considered bad news for the bond market and mortgage pricing because it usually means consumers are more willing to make large purchases. Friday's report is expected to show a reading of 59.7, unchanged from the preliminary reading posted two weeks ago. Favorable results for bonds and mortgage rates would be a sizable decline in confidence.


Overall, no day seems as an easy choice for most active for rates, but assuming geopolitical news is kept to a minimum, Wednesday has potential to be that day. The markets can get active without notice, especially during times of volatile geopolitical events. Therefore, it would be prudent to keep an eye on the markets if still floating an interest rate and closing in the near future.

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