Weekly Mortgage Rate Watch: March 4th – 8th, 2024

Monday: A Quiet Prelude with an Eye on the Horizon

The week opened on a subdued note for bond market investors and those keenly watching mortgage rates, with Monday lacking significant data releases. Yet, there's an underlying current of anticipation, as this marks the beginning of several consequential weeks brimming with pivotal economic data. The investment community is particularly focused on Tuesday's upcoming ISM services report and the much-anticipated jobs report on Friday. These pieces of data are eagerly awaited, as they possess the potential to catalyze rates on a departure from the recent period of stagnation, where interest rates have been confined within a narrow range for the past two weeks. Mortgage rates ended the day settled at 7.09%.

Tuesday: Insightful Revelations from the Service Sector

The spotlight turned to the service sector on Tuesday, with the morning unveiling of the ISM Services Purchasing Managers' Index (PMI). This release provided a comprehensive analysis of the sector's current health. The PMI for February was recorded at 52.6, indicating a slight deceleration in growth, marking a modest reduction of 0.8 from the previous month's 53.4. Despite this decline, the index remained above the critical threshold of 50, signifying continued expansion, albeit at a more measured pace.

The report's granular data revealed pivotal trends: a notable decrease in the Prices Paid index from 64 to 58.6 and a shift in Employment into contraction territory, moving from 50.5 in January to 48.0 in February. These elements could have significant implications—the adjustment in Prices Paid suggests that future consumer pricing strategies and inflationary pressures may be heading in the right direction. At the same time, the shift in employment metrics may foretell the direction of broader labor market trends, signaling slowdowns in hiring and offering early indications for the upcoming Jobs Report.

This refined analysis of the service sector's dynamics fostered a cautiously optimistic sentiment among market participants, leading to a decline in mortgage rates to the lowest point in three weeks, at 7.03%. This movement towards sub-7% territory signifies a potential turning point for the market and prospective homeowners, suggesting a more favorable environment may be on the horizon. The detailed scrutiny of Tuesday's economic data reflects the complex interplay between specific sectoral health and mortgage rates. It exemplifies the strategic importance of interpreting nuanced economic indicators within a broader market context.

Wednesday: A Mix of Economic Indicators and Central Bank Insights

The midweek brought a convergence of economic data and pivotal Federal Reserve testimony, setting the tone for the financial markets. The day kicked off with the ADP Employment Report, offering a snapshot of the private non-farm payroll sector. The report highlighted an uptick in job growth, with 140,000 jobs added, an improvement over January's 110,000 additions. Notably, wage trends diverged; pay gains for existing employees edged down slightly from 5.2% to 5.1%, while wages for job changers increased from 7.2% to 7.6%, marking the first rise since November 2022. Given its timing before the comprehensive BLS jobs report, the ADP's findings are sifted through for clues that could allow the market to gaze ahead and provide foresight into Friday's much-anticipated jobs report. Yet, the ADP report delivered a mixed bag, failing to sway the markets as some had anticipated.

The day's spotlight, however, was on Federal Reserve Chairman Jerome Powell's Congressional testimony. As part of a long-standing mandate since 1978, the Fed Chair's biannual visits to Congress are critical for outlining the central bank's policy directions and economic outlook. Powell's remarks hinted at the culmination of the monetary tightening cycle, with future rate reductions on the horizon. Despite Powell's caution that further positive inflation data is needed before committing to rate adjustments, this indication of impending rate cuts, albeit without a specified timeline, was a positive signal for the markets.

In addition to these macroeconomic insights, the Mortgage Bankers Association's weekly mortgage application update provided a tangible measure of market activity. The report revealed a notable rebound in mortgage applications, with the Market Composite Index climbing 9.7% on a seasonally adjusted basis from the previous week. This resurgence in mortgage activity may be attributed to a combination of the recent decline in interest rates and the onset of the spring home-buying season.

The culmination of Wednesday's developments left the average interest rate for 30-year fixed-rate mortgages at 6.97%, breaking the 7% barrier and marking a subtle yet optimistic adjustment in the housing finance landscape.

Thursday: Market Reactions to Mixed Economic Signals

The weekly jobless claims report arrived with figures aligning with expectations at 217,000 newly filed claims for unemployment. Yet, the growing number of continued claims, which rose to 1.88 million—the highest number since December 2021—suggests a tightening labor market, as it has become increasingly difficult for those who are unemployed to find work. This situation appears to stem from the contraction in job openings. Presently, the job openings stand at 8.9 million, a significant reduction from the peak of 12 million observed in March of 2022. This cooldown in the labor market is further evidence supporting the hypothesis that tight monetary policy is doing its job.

Mortgage rates also received some good news from abroad. The European Central Bank (ECB) delivered a note of optimism, reducing its annual inflation forecast for the twenty member countries. The ECB referred to progress in economic recovery and the fight against inflation. However, the ECB made it clear that it is unlikely to make any decision regarding rate cuts until at least June as it waits for pivotal wage data, which is released in May.

Federal Reserve Chairman Jerome Powell's second round of testimony provided no substantial surprises, and the markets, having assimilated Powell's stance from the previous day, showed a muted response. The day concluded with a modest decrease in mortgage rates, with the 30-year fixed rate settling at 6.92%.

Friday: Parsing Through the BLS Employment Report

The release of the BLS's non-farm payroll jobs report marked the end of the anticipation but left a sour taste as the data presented conflicting narratives. The creation of 275,000 jobs outpaced the 200,000 forecast, signaling an economy still running hot as businesses remain confident in the economy and future demand via their willingness to hire to increase productivity. Contrarily, the uptick in the month-over-month unemployment rate from 3.7% to 3.9%, alongside an increase in the total number of unemployed to 6.5 million from 6 million a year prior, painted a more sobering picture, possibly indicative of sector-specific disparities and ongoing layoffs.

Wage growth also showed a notable deceleration; average hourly earnings rose merely by $0.05, a stark slowdown from the $0.18 rise a month earlier, resulting in a modest 0.1% increase in wages—well below the 0.3% expected. The most consequential revelation in the report came from a downward revision in the previous month's job gains, from an initially reported 375,000 to now 229,000, reflecting the inherent volatility in employment data.

As Friday came to an end, mortgage rates reflected the culmination of these varied economic factors, and the downward trend was sustained, with the average rate for a 30-year fixed-rate mortgage dropping to 6.85%, the lowest since February 2nd.

Looking Ahead

The week gets off to an early start and with a bang. The economic stage is set for a spotlight moment on Tuesday with the release of the CPI report. This critical metric holds the reins to interest rate directions as the market discerns from the data the next move from the Fed. A 'hot' CPI could signal that the path to 2% inflation may be treacherous, delaying the timeline for anticipated rate cuts, while a 'cool' CPI would support the soft landing narrative the market hopes for and that monetary easing could arrive sooner rather than later.

Shifting focus to Thursday, the narrative deepens with the Producer Price Index (PPI)—the barometer of the wholesale ecosystem and, importantly, the prices producers pay for goods. These prices are, in turn, passed on to retailers, and this can impact inflation and, therefore, future CPI reports. Thursday also brings the weekly jobless claims report, with market spectators eager to confirm if the labor market's recent cooling is more than a transient breeze.

Finally, Friday unveils the Consumer Sentiment Index, painting a picture of the experience on Main Street and providing the market with a look into how consumers feel about their prospects in the job market, inflation in personal finances, and future purchasing power.

New weeks, notable economic reports

• Monday - No reports scheduled

• Tuesday - Consumer Price Index (CPI)

• Wednesday - No reports scheduled

• Thursday- Producer Price Index ( PPI), Retail Sales, Jobless claims

• Friday - Consumer sentiment