Weekly Mortgage Rate Watch: March 11th-15th

Monday: Calm Anticipation Ahead of Critical Data

Monday's market reflected the typical absence of economic data, consistent with the start of most weeks. Nonetheless, the stakes are exceptionally high this week as the trend of declining interest rates over the past two weeks hangs in the balance, awaiting confirmation. Market participants will be on high alert for signs that inflation's pullback is not a mere aberration and that the cooling of the economy and labor market will continue to support the downward trend in rates.

Tuesday's upcoming Consumer Price Index (CPI) report will be the focal point this week, harnessing the potential to significantly impact the inflation narrative and the mortgage rates landscape for better or worse. Of course, the data could thread the needle and align precisely with market expectations, eliciting a muted response. However, with inflation data playing such a pivotal role in the trajectory of interest rates, the market always finds something in the CPI reports to create a narrative.

So until tomorrow, the bond market is simply holding its breath, waiting for this crucial inflation indicator. Monday ended with mortgage rates holding steady. There was little change from the end of last week, with the average interest rate for a 30-year fixed mortgage at a relative 6.87%.

Tuesday: CPI Delivers Mixed Signals

After weeks of waiting, the much-anticipated CPI report arrived. This report is a bellwether for inflation and a critical determinant of Federal Reserve policy affecting mortgage rates. The report came in hotter than expected: an uptick in headline inflation to an annual 3.8%, surpassing the 3.7% market forecast, and a core CPI (excluding volatile food and energy components) increase of 0.4% month-over-month against market expectations of 0.3%.

The data painted a picture of stubborn inflationary pressures, which is not good if you want mortgage rates to descend further. Yet, the nuanced details of the report, including a decline in the closely watched shelter component, which makes up 40% of the CPI core index, provided a potential silver lining indicating a cooling pattern in housing costs, dropping to 0.4% this month from 0.6% previously.

This is especially relevant considering the lag in CPI's methodology for measuring shelter costs, with the hopes that housing costs could soon reflect what the private data sources have been for months, which is that home prices and rents have been flat or even declined depending on the market. This detailed parsing may have tempered market reactions with a modest increase in mortgage rates to 6.92%, as opposed to the more dramatic movements seen previously on the release of the CPI.

Wednesday: A Breather for Market Assimilation

Wednesday's schedule was clear of economic data, offering the markets a moment to assimilate and reflect on the CPI data's implications for inflation and, consequently, mortgage rates.

We did get the weekly Mortgage Bankers Association report, which showed a rise in mortgage applications, increasing 7.1% on a seasonally adjusted basis and suggesting that borrowers are actively engaging with the current rate environment. This is not surprising, as mortgage rates broke the 7% barrier last week into the 6s, and round numbers always hold significance in the minds of consumers.

As the market settled into a holding pattern ahead of tomorrow's release of more influential data, the average rate for a 30-year fixed mortgage increased slightly to 6.94%.

Thursday: Parsing Through a Trio of Economic Data

Thursday brought a convergence of economic indicators: the Producer Price Index (PPI), weekly jobless claims, and retail sales figures. The Producer Price Index (PPI) showed wholesale inflation running hotter than expected by quite a wide margin, up 0.6% month-over-month versus the market expectations of 0.3%. Even after stripping out the more volatile food and energy prices (i.e., "core" inflation), PPI was up 0.3%. Though this is lower than last month's print of 0.5%, the market had forecasted a drop to 0.2%.

While these figures might appear modest at first glance, it's important to contextualize them against the Federal Reserve's benchmark: a 2.0% annual inflation target at the core level. When extrapolated over a year, the core CPI's increase of 0.4% and the PPI's rise of 0.3% translate to an annualized rate of 4.8% and 3.6%, respectively. These are more than double the Fed's target, underscoring the entrenched nature of inflation and the uphill battle for monetary policy to rein it in.

Jobless claims further complicated the picture, as initial claims edged down slightly to 209,000. The most impactful part of the data was actually the revisions, as last week's initial claims were revised downward to 210,000 from 217,000, suggesting a stronger labor market than previously understood; this continued further with a notable revision to continued claims from the preceding week from 1,906,000 to 1,794,000.

Retail sales data were the only bright spot on the day, as sales rose by 0.6% compared to the anticipated 0.8%. This modest uptick comes on the heels of January's figures, which were adjusted downward to a decline of 1.1%.

The boost in February's numbers can be partially attributed to the fluctuating costs of gasoline and a rebound in auto sales and building materials, the latter having been previously dampened by January's inclement weather. When excluding sales from gas stations and auto dealerships, the increase in sales was a more subdued 0.3%.

It's critical to note that government retail data does not account for inflationary adjustments. Thus, against the backdrop of the CPI's monthly inflation rate of 0.4%, the real gains for retailers shrink to a marginal increase when inflation is taken into account. The softer-than-anticipated retail sales could hint at a tightening grip on consumer spending due to rising costs and debt burdens, and less spending is good news for future inflation.

But retail sales could not save the day. With a hot PPI report and downward revisions to jobless claims data, it came as little surprise that interest rates edged upwards. The day concluded with the average rate for a conventional, 30-year fixed-rate mortgage crossing the 7% threshold to land at 7.02%.

Friday: Subdued End to a Data-Heavy Week

Friday was another quiet day in terms of economic data. The only release was the Consumer Confidence survey, which historically has little to no influence on mortgage rates as it is soft data (subjective and reflects opinions, expectations, and perceptions) and, on top of that, a lagging indicator.

Consumer sentiment experienced a marginal dip, moving from 76.9 to 76.5. Despite this, the overall trend for the past 14 months has been a robust improvement, with a 25% uptick since 2023. For the month of February, sentiment in regard to future business conditions tempered slightly, while personal financial perspectives showed a slight uptick. Since the beginning of the year, consumer sentiment has remained relatively flat, providing limited visibility into the broader economic trajectory through the eyes of the consumer.

As the week drew to a close, the damage had been done on both Tuesday and Thursday, and the market was in no mood for any kind of reversal as interest rates continued to climb throughout the day, resulting in the most pronounced escalation in rates since the previous October, with the average rate for a 30-year fixed-rate mortgage finalizing at 7.09%.

Looking ahead

Next week doesn't come packed with the barrage of pivotal economic data we've seen this week. However, nothing grabs the market's attention quite like a speech from Jerome Powell. Thus, the spotlight next week undeniably turns to Wednesday's Fed Announcement. It's clear there's no expectation for a rate cut at this juncture. Instead, the markets will zero in with keen interest on the Fed's updated rate projections. Given that these projections are updated only quarterly, this marks the first update since December 13, offering crucial insights into how the recent two months of heightened inflation figures have swayed the Fed's outlook on rates.

Tuesday will bring us some insights from the housing sector, with data on residential new construction expected. This should shed some light on the pulse of homebuilders and their current level of activity, providing some context for the future of housing supply.

Thursday promises to be the week's most data-intensive day, featuring the initial flash Services and Manufacturing PMI data along with the Leading Economic Indicators (LEI). While the LEI offers important insights, it often encapsulates data previously released and, therefore, is likely already reflected in current rates by the bond market. Additionally, Thursday will deliver figures on existing home sales, highlighting sales activity in the residential real estate sector. This sector has shown significant responsiveness to the shifts in mortgage rates, making this data especially relevant for gauging market dynamics.

In sum, while the upcoming week may seem lighter on the surface compared to the deluge of data we've navigated through this week, the focused anticipation of Powell's address and the selective economic releases on tap are poised to keep the markets on their toes, continuing the intricate dance between policy signals, economic health indicators, and the ever-evolving narrative of interest rates.

Next week's, notable economic reports:

• Monday - Home builder confidence

• Tuesday - Housing starts, Building permits

• Wednesday - Jerome Powell press conference & interest rate decision

• Thursday - Initial Jobless claims , S&P services and manufacturing PMI, Leading economic indicators (LEI), Existing home sales.

• Friday - No reports scheduled

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