Mortgage Rates Stabilize After Digesting Today's News 2-1-2018

By James Brooks

The bond market is down 7/32 (2.72%), which should push Raleigh Area mortgage rates higher by approximately .125 of a discount point.

There were two pieces of data posted at 8:30 AM ET this morning, neither of which were considered important to the financial or mortgage markets. The first was last week's unemployment update that showed 230,000 new claims for unemployment benefits were filed. This was a little lower than the 238,000 that was expected and a slight change from the previous week's revised 231,000 initial filings. Rising claims is a sign of a weakening employment sector, but because there was little change and analysts were expecting to see a higher number of initial filings, we should consider this data negative for mortgage rates. However, it is only a weekly snapshot and the variance from forecasts was not significant. Therefore, it has had a minimal impact on today's mortgage rates.

Also posted early this morning was 4th Quarter Employee Productivity and Costs data. It revealed that worker productivity slipped at an annual rate of 0.1% last quarter. Analysts were expecting to see an increase of 1.0%. In this report, the higher the growth rate the better the news it is for bonds. This means we can consider the data also to be negative for mortgage rates.

The big news of the day was the Institute of Supply Management's (ISM) manufacturing index for January at 10:00 AM ET. It came in at 59.1, exceeding forecasts of 58.5. This was a decline from December?s 59.7, meaning surveyed manufacturing executives felt business was a little worse than in December. The decline is good news as it points towards weaker economic activity. However, because a softer reading was expected, we should consider the news to be slightly negative for bonds and mortgage pricing.

Tomorrow has three pieces of economic data scheduled for release that are relevant to mortgage rates. The first will come from the Labor Department, who will release the extremely important monthly Employment report for January at 8:30 AM ET. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a much smaller increase in payrolls than expected and little or no increase in earnings. Current forecasts are calling for no change in the unemployment rate of 4.1% and approximately 180,000 new jobs added to the economy. I am paying close attention to the average hourly earnings reading also as it is a sign of wage inflation. Stronger than expected readings will likely fuel a stock market rally and selling in bonds that would cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers would raise concerns about the strength of the economy and would likely lead to a sizable improvement in mortgage pricing.

December's Factory Orders data is also scheduled to be posted tomorrow morning but at 10:00 AM ET. It is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is not one of the more important reports we get each month, however, it can influence mortgage pricing if it varies greatly from forecasts. Analysts are expecting a 1.3% rise in new orders, indicating a strengthening manufacturing sector. The bond market would like to see a large decline, meaning that manufacturing activity was weaker than many had thought.

The final economic report of the week is the revised reading to the University of Michigan's Index of Consumer Sentiment at 10:00 AM ET. This index is a measurement of consumer confidence that is thought to indicate consumer willingness to spend. I don't see this data having much of an influence on the markets or mortgage rates because of the importance of the first release. Analysts are expecting to see a small increase from the preliminary reading of 94.4. A large increase would mean consumers are more likely to make a large purchase in the near future, fueling economic growth.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now.

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