While there was some volatility, it was a relatively quiet week for mortgage rates. The major economic data was mixed. In a nice break from the recent upward trend, mortgage rates ended the week with little change.
The latest report on housing starts was encouraging. In January, single-family housing starts rose 4% from December. They were 8% higher than a year ago. A lack of inventory has been holding back home sales in many regions, so it's good to see that home builders appear to be picking up the pace of construction.
Unlike the housing data, the report on retail sales was disappointing. Excluding the volatile auto component, retail sales in January were flat from December, which was far below the expected increase of 0.5%. The results for December were revised significantly lower as well. Since weaker economic growth reduces the outlook for future inflation, this data was positive for mortgage rates.
Offsetting the weakness in retail sales, an upside surprise in the latest report on current inflation levels was decidedly negative for mortgage rates. In January, the core Consumer Price Index (CPI), which excludes the volatile food and energy components, rose 0.3% from December, which was higher than expected. Core CPI was 1.8% higher than a year, which also was a faster rate of increase than expected. Bond yields, including mortgage rates, must rise to offset higher inflation.
Looking ahead, it will be a very light week for economic data. Existing Home Sales will be released on Wednesday. The minutes from the January 31 Fed meeting also will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials about future monetary policy and have the potential to move markets. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. Mortgage markets will be closed on Monday in observance of Presidents Day.
source: Mortgage Time Newsletter