Weekly Mortgage Rate Watch: March 18th-22nd
- Marcus
- Mar 26, 2024
- 7 min read
Updated: Apr 17, 2024
Monday: Market Stabilizes in Anticipation of Federal Reserve Insights
In the wake of last week's rapid escalation in mortgage rates, the fastest since October, Monday's market landscape was comparatively tranquil, devoid of significant economic data. With rates hovering at the high end of 2024's technical range, market participants are poised for any upcoming data or insights that could catalyze a response from the bond market, as rates are at this crossroads.
Inflation and the labor market are the biggest influences on mortgage rates when it comes to data, but little compares to announcements and insights from the Federal Reserve itself. Depending on what Jerome Powell says during the Federal Open Market Committee (FOMC) press conference on Wednesday, the market will dictate whether rates are at a temporary peak, ready to retract, or poised to break through their current ceiling and establish new yearly highs.
But until then, Monday remains a placeholder day, with the average interest rate for a 30-year fixed-rate mortgage closing the day mostly unchanged from last Friday, at 7.11%.
Tuesday: Housing Data Arrives Amid Rate Speculation
Tuesday provided a glimpse into the housing sector with the release of new construction data. Although this report doesn't directly illuminate paths for inflation or labor market trajectories or incite major movements in interest rates, the findings were still notable: the construction of single-family homes continued its upward trend from early 2023, with permits rising 1.2% month over month and a significant 29.5% year over year.
Housing starts mirrored this trajectory, marking an 11.6% monthly and 35.2% annual increase. These trends stem from a decrease in existing home inventory, as sellers remain reluctant to sell their homes due to the high mortgage rates they would face when purchasing a replacement, making new construction the only show in town. This is prompting builders to amplify production and address new inventory demands.
Conversely, multifamily projects present a stark contrast, with permits for buildings with five units or more up 2.4% monthly but down 32.8% annually. Starts show a similar pattern, up 8.6% monthly but down 35.9% on an annual basis. This decline in the production of condos and apartment buildings is due to an increase in interest rates making funding these projects nearly impossible. Increases in labor and material costs and the regulatory, zoning, and permit processes remain significant roadblocks to timelines and budgets.
While immediate effects on inflation, labor, or interest rates may be limited, these trends hold significant implications for long-term housing affordability. A persistent housing shortage, if not addressed by increased production, could continue to exert upward pressure on rents and home prices, affecting overall affordability for years to come.
Tuesday was largely a holding day, with markets looking to Wednesday's FOMC press conference for directional cues. Given the recent heated inflation and job reports, it's clear the Fed won't be cutting rates soon. But the market will be looking for adjustments to rate outlooks moving forward. The day ended with the average 30-year fixed mortgage rate unchanged at 7.11%.
Wednesday: Powell's Assurance and MBA Data Inform Market Movements
The Federal Reserve was up to the plate on Wednesday. This conference held even more weight as it was supported by the release of the Federal Reserve's "dot plot", which is released four times a year and is a visual representation used by the Federal Open Market Committee (FOMC) to display interest rate, unemployment, economic growth (GDP), and most prevalent right now, FED Funds rate projections of the individual members of the committee. Each dot in the plot and graph represents the committee's and its members' views on where they feel each component should be at the end of the year for the current year, the next few years, and in the longer run.
The biggest gain from the report showed that, on average, the committee anticipates that the fed funds rate would be at 4.6 by the end of the year, which would be a 65-90 basis point (bp) drop from its current range of 5.25-5.5, indicating that the Fed is still anticipating cutting rates around three times, 25 bps per cut, by the end of the year. This was reassuring for the bond market after the recent hotter inflation and labor market data over the past two months caused market participants to wonder if rate hikes in 2024 were in jeopardy.
Powell's reassurances during the conference reaffirmed that the economy and labor market remained strong, and that the implementation of restrictive monetary policy had made a sizeable impact on inflation. Despite heightened figures in recent months, Powell confirmed the Fed's stance on 2024 rate cuts remained unchanged, although contingent on forthcoming data.
With Powell's reaffirmation that rate reductions are still on the table, the bond market breathed a sigh of relief, and mortgage rates adjusted accordingly. The average interest rate on a 30-year fixed mortgage decreased to 7.03%, signaling market sensitivity to the Fed's projected monetary policy path.
Thursday: A Day of Market Reflections and Economic Insights
Weekly jobless claims delivered data that sparked minimal immediate impact on rate directions. Initial jobless claims were reported at 210,000, a decrease of 2,000 from the prior week's revised figure of 212,000, and slightly below the market's expectation of 213,000.
The four-week moving average of continued claims, a more stable measure of unemployment trends, saw a modest uptick of 5,000, settling at 1.802 million. This metric has remained in this range for the past few months and indicates minimal further softening of the labor market, but it remains more challenging for those who have become unemployed to find new job opportunities.
Thursday also brought insights from the Institute for Supply Management (ISM), focusing on the Purchasing Managers' Index (PMI) for both the manufacturing and service sectors. This index serves as a barometer for economic health and is generally considered a leading economic indicator because purchasing managers can provide insights into changing business conditions and early signals of shifts in economic activity. A reading above 50 signifies expansion, and below 50 signifies contraction.
Manufacturing offered a positive surprise, surging to a 21-month high of 52.5, surpassing market expectations of 51.7. This improvement was due to robust output growth and a slight increase in job creation.
Conversely, the service sector painted a mixed picture, with its PMI dipping to a three-month low of 51.7, albeit remaining in expansion territory. New business growth was hampered as customers were reluctant to commit to new orders due to the increase in prices. This dynamic warrants close monitoring; If the trend continues and the service sector enters contraction territory, it would be positive for the future of mortgage rates. Given that service sector inflation has remained stubborn, a decline in demand would be the first step in reversing this trend.
However, this optimism was tempered by a resurgence in inflationary pressures, notably in input costs, propelled by rising labor costs impacting services and rising energy costs impacting manufacturing. This uptrend in costs prompted firms to elevate selling prices, marking the most significant nominal increase since April 2023—a development that could presage persistent inflationary challenges and sustained restrictive monetary policies.
In the housing market, existing home sales defied expectations, registering a 9.5% increase from January, though reflecting a 3% year-over-year decline. It is important to keep in mind that sales in February reflect transactions that went into contract in December and January when interest rates were at levels below where they stand now.
Median home prices continued their upward trajectory, achieving a 5.7% year-over-year increase—evidence of sustained market resilience. Moreover, the hint of an uptick in housing supply offers a glimmer of optimism, with inventory levels totaling 1.07 million homes for sale rising 5.9% on a month-over-month basis and 10% compared to the same time last year.
Despite varied data points, the overarching sentiment comes from the lingering influence of Jerome Powell's prior assurances, allowing the average 30-year mortgage rate to descend into the 6% range, concluding the day at 6.96%.
Friday: A Pause in Economic Data and Market Reflections
This Friday marked an unusual pause in the financial calendar as the day unfolded without the release of any significant economic data. In the absence of fresh indicators to sway sentiment, the bond market maintained its recent downward trajectory. This subdued activity culminated with the average rate for a 30-year fixed mortgage recalibrating to the previous week's lows, settling at 6.91%.
Looking Ahead: A Shortened Week with Anticipated Updates
The coming week presents a unique setup, not due to an influx of unusual economic reports but rather owing to the bond market's abbreviated schedule in observance of Easter. This shortened trading week spotlights Friday's Personal Consumption Expenditures (PCE) index release, the Federal Reserve's preferred inflation gauge. With the bond market closed on this critical day, stakeholders are forced to wait until the market reopens on Monday for its reaction to the inflation data.
Due to the week's limited span and the fact that outside of Friday, the data release has little influence, it's unlikely that we will see any significant movement in mortgage rates over the three and a half days the bond market is open. All that being said, it would be foolish to ignore the incoming data, as with any volatile market; all it takes is a little push to send things swinging one way or another.
The week starts off Monday with the release of new home sales data; Tuesday's agenda includes the S&P Case-Shiller Home Price Index and consumer confidence reports. Thursday, while abbreviated, is no less eventful, featuring initial jobless claims and GDP revisions. Any significant adjustments to the GDP figures could spark reactions, setting the stage for a deeper analysis of economic health. The day further unfolds with pending home sales, serving as a precursor to existing home sales trends and offering a glimpse into the real estate market's trajectory. The week's economic discourse concludes with an update on consumer sentiment.
Next week's notable economic reports:
Monday - New Home sales
Tuesday - Case-Shiller home price index, Consumer confidence
Wednesday - No reports scheduled
Thursday - Initial Jobless claims, GDP (2nd revision), Pending home sales, Consumer sentiment
Friday - PCE Index
Comments