Political news caused some volatility for mortgage rates this week, but the net effect was small. There was little reaction to the economic data or to Friday's highly anticipated speech by Fed Chair Janet Yellen. Her speech did not include comments about monetary policy. Mortgage rates ended the week slightly lower, at the best levels of the year.
Faster economic growth raises the outlook for future inflation, which is negative for mortgage rates, while slower growth has the opposite effect. On Tuesday, investors were surprised to hear reports that the Trump administration and key Republicans in Congress had made progress on tax reform. Since a tax reform package is expected to be pro-growth, mortgage rates rose after the news. However, remarks from President Trump about possibly ending the NAFTA trade agreement caused a reversal on Wednesday. Mortgage rates moved lower because most investors think that ending NAFTA would slow economic growth.
The housing data released this week revealed that a shortage of inventory remains a headwind for home sales. In July, sales of previously owned homes decreased a little from June to the lowest level since August 2016. Total inventory of homes for sale fell to a 4.2-month supply, and it was 9% lower than a year ago.
New home sales, which are more volatile month to month, dropped 9% from June. On the positive side, the June results for new home sales were revised higher.
Looking ahead, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the first revision to second quarter GDP will come out on Wednesday. The Core PCE price index, the inflation indicator favored by the Fed, will be released on Thursday. The ISM national manufacturing index will come out on Friday. In addition, there will be Treasury auctions on Monday and Tuesday.