Sticky inflation and increasing U.S. debt contributed to mortgage rate volatility that had rates showing improvement mid-week, but moving higher by week’s end.
The CPI (consumer price index) came in higher than expected last week, with housing and energy costs making the biggest splash. Not only did the higher inflation spook markets, but pushed the chance of a Fed rate cut to June, at least.
Wholesale prices followed suit as the Producer Price Index, a leading indicator for consumer prices, came in higher than expected. As we know, wholesale prices trickle down to the consumer, so the sticky inflation may be with us for longer than we’d like.
Retail sales numbers were weaker than expected. This is significant because consumer behavior is considered an important barometer of the health of the economy and makes up two-thirds of our economy. Consumers seem to be cautious and feeling the pinch from higher prices.
Mortgage rates have also suffered as a result of the government’s deficit spending. As the Treasury Department sells billions of dollars of bonds in the market to fund the government it forces rates higher for all bonds, including mortgage bonds, which then filters down to higher mortgage rates.
As for this week, there’s a Fed meeting that adjourns mid-week. There’s pretty much no chance of a rate cut in light of the inflation data. Analysts will be most interested in what the Fed says about the prospect of future rate cuts. Markets do not do well in uncertainty, it increases volatility, so we’ll see if the Fed Chair offers any comfort or certainty in his press conference following the rate announcement.
There are a couple pieces of housing market data that are interesting to note. The first is the Housing Market Index. Forecasters expected the housing market index to hold steady in March after rising 4 points in February to 48, which was better than expected and tied to moderation in mortgage rates. The index, which represents the sentiment of the nation’s home builders, came in much higher than expected at 51!
Housing Starts and Building Permits, considered a leading indicator of Home Sales numbers, rebounded much more sharply than expected to a 1.52 million annualized rate versus January’s 1.33 million that was lower than expected and held down in part by severe weather and also unusual strength in December. Permits, at 1.470 and 1.493 million the past two reports, also rose sharply to 1.52 million, handily beating the expected rise to 1.500 million.
On Thursday we’ll get a look at Existing Home Sales. After January’s 3.1 percent monthly climb to a 4.00 million annual rate, existing home sales in February are expected to fall back to a 3.92 million rate.
I’ll be keeping an eye on it all and report back next week. Have a great rest of your week!
