Key Events to Watch This Week

This week is jam-packed with significant data releases and events that could influence mortgage rates and the broader economy. With several critical indicators on the agenda, market participants should brace for potential shifts and volatility. Let’s break down the key events and their expected impacts.

Case-Shiller and FHFA Home Price Indices - Tuesday. Home price indices from Case-Shiller and the Federal Housing Finance Agency (FHFA) are set to release on Tuesday. These indices provide a detailed look at home price appreciation, which is crucial for gauging the health of the real estate market. April’s data is particularly significant as it could reveal whether there are signs of a downward shift in home prices, a concern for many investors and homeowners.

CB Consumer Confidence Data - Tuesday. Also on Tuesday, the Conference Board (CB) will release its Consumer Confidence Index. This index is vital because consumer spending constitutes two-thirds of the economy. A drop in consumer confidence can signal reduced spending, which gatekeepers and policymakers closely monitor.

New Home Sales Data - Wednesday. On Wednesday, new home sales data will be released, offering insights into the demand for new housing. This data is a leading indicator of the real estate market’s health and can impact builder sentiment and construction activity.

Pending Home Sales Data - Thursday. Pending home sales data, set for release on Thursday, provides a forward-looking indicator of housing market activity. Pending sales reflect signed contracts, so this data helps predict future closed sales and market trends.

Q1 2024 Final GDP Data - Thursday. Thursday also brings the final reading of Q1 2024 GDP data. GDP is a broad measure of economic activity and growth. The final reading will provide a comprehensive look at how the economy fared in the first quarter, influencing economic outlooks and policy decisions.

Jobless Claims - Thursday. Weekly jobless claims data will be released on Thursday, providing an update on the labor market. Trends in jobless claims can indicate the strength or weakness of the labor market and are closely watched by the Federal Reserve.

May PCE Inflation Data - Friday. On Friday, the Personal Consumption Expenditures (PCE) inflation data for May will be released. This is the Fed’s preferred measure of inflation, and the data will be scrutinized for signs of inflationary pressure, which could influence future monetary policy.

Fed Monetary Policy Report - Friday. The Fed’s Monetary Policy Report, also due on Friday, will offer insights into the central bank’s view on economic conditions and policy directions. This report can provide valuable context for understanding future rate decisions.

Throughout the week, eight Fed speakers will make public statements. Each statement will be closely analyzed for hints on the future direction of monetary policy and economic outlook.

Mortgage Rate Implications
Understanding the factors that drive bond prices is crucial, as they directly affect mortgage rates. When bond prices rise, mortgage rates typically fall. Here are the main factors to watch:

Economic Slowdown
During periods of economic uncertainty or slowdown, investors often flock to safer investments like bonds, pushing their prices up. Statements from Fed members indicating that the policy is too restrictive or consumer spending is slowing down can signal a potential rate cut.

Lower Inflation Expectations
When inflation expectations decrease, bonds become more attractive due to higher real returns. This increased demand raises bond prices, which can lead to lower mortgage rates.

Central Bank Policies
Actions by central banks, such as lowering interest rates or engaging in quantitative easing, can boost bond prices. Markets look for signals of rate cuts or policy changes following central bank meetings.

Market Sentiment and Risk Aversion
In times of geopolitical uncertainty or market volatility, investors tend to move towards bonds, considered safer assets. This risk aversion drives up bond prices.

Foreign Investment
Foreign investment in U.S. bonds can push prices higher, especially when U.S. yields are attractive compared to other countries' bonds.

Supply and Demand Dynamics
The balance of supply and demand for bonds also impacts prices. Limited supply with high demand leads to higher bond prices.

Yield Movements
As bond yields fall, prices rise because existing bonds with higher yields become more valuable. This inverse relationship is crucial for understanding mortgage rate movements.

Labor Market Update
The U.S. labor market is showing signs of weakness. The unemployment rate has crossed above its 36-month moving average, a precursor to potential economic recessions. Since April 2023, the unemployment rate has risen from 3.4% to 4.0%, with 1.5 million Americans losing full-time jobs in six months.

Initial jobless claims fell slightly last week, but continuing claims remain high, indicating a slowdown in hiring. The Federal Reserve will monitor these trends closely as they weigh potential rate cuts, balancing their dual mandate of price stability and maximum employment.

Wage growth is expected to continue slowing in 2024. Over the past three months, private hourly wage growth has averaged 4.1% annually. This rate is down from the peak of 5.9% in March 2022 but still slightly above the Fed’s inflation target.

Recession Talk
The probability of a recession within the next year, according to the Federal Reserve model, stands at 52%, down from a peak of 71% in May 2023. Historically, when this probability exceeds 30%, the U.S. economy experiences a downturn within two years. The yield curve inversion, which has lasted over 700 days, also signals potential economic challenges.

Pros and Cons of a Recession in Relation to Housing:

Pros: 

Lower Mortgage Rates: Recessions often lead to lower interest rates, making mortgages more affordable. Decreased Home Prices: Housing prices may fall, offering buying opportunities at lower costs.

Cons: 

Job Insecurity: Higher unemployment and job uncertainty can make it difficult to secure mortgages.
Reduced Housing Market Activity: Economic downturns generally lead to fewer transactions and lower demand.
Housing Market Trends and Buyer Behavior: Housing costs may decrease as mortgage rates decline and price growth slows. Buyers now have more negotiating power, especially for homes needing work. Pending home sales recently saw their largest drop since early March, and early-stage house-hunting activities are also down.

Despite a slight drop in the weekly average mortgage rate to 6.95%, costs remain high compared to pandemic-era lows. This has caused some buyers to hesitate, giving those who remain more room to negotiate. Sellers are dropping list prices, and new listings remain low, with many homes staying on the market longer.

This week’s economic data releases and events are crucial for understanding market trends and potential shifts. From home price indices to consumer confidence and GDP data, each release provides valuable insights. By keeping an eye on these indicators, you can