There are some interesting developments happening in markets that have the potential to affect mortgage rates that I want you to be aware of. First of all, in the statement following the end of their meeting last week, the Fed finally acknowledged growing inflation that they now expect to continue for the rest of this year. This is interesting because their acknowledgment may lead to their tapering off buying mortgage backed securities (mbs) – which they’re doing now to the tune of at least $40 billion dollars per month.
If and when this tapering happens, mortgage rates are likely to rise. Additionally, the Fed has an important annual meeting in Jackson Hole, Wyoming at the end of August. This meeting usually produces major policy changes. It’s expected that they will be discussing their mbs purchases and whether they need to change based on the level of inflation.
What this means for you is that if you have been on the fence about a home purchase or haven’t yet pulled the trigger on a refinance, the safe bet is to jump on that now and not wait any longer.
We have additional inflation news coming out this week, in fact it’s the Fed’s favorite inflation indicator. If it also shows out-sized and growing inflation the case becomes stronger for the Fed to reassess bond purchases and markets may respond accordingly.
What else I’m watching this week…
There are numerous reports on the health of the housing market, which of course we expect to show strength.
First up was the numbers for Existing Home Sales. As inventory has been a constant issue, sales have been slowing and have missed expectations the last three reports. The number for for May beat expectations at 5.8 million annual rate versus April’s 5.850 million, a 44.6 percent increase in sales over last year.
New home sales fell back sharply in April but are expected to re-accelerate in May, to an 881,000 annual rate versus April’s 863,000.
The report on personal income, which has been swinging wildly on stimulus payments, is expected to fall 2.6 percent in May. Personal consumption expenditures, after April’s 0.5 percent rise, are expected to rise 0.3 percent in May.
The Fed’s favorite inflation indicator, the PCE Index, which has turned sharply higher, is expected to rise 0.5 percent on the month and 3.9 percent on the year with the core seen at a monthly 0.6 percent for an annual 3.5 percent. Any surprises here could cause a widespread market reaction as inflation concerns persist.