The primary influence on mortgage rates this week was the Fed minutes, which were considered to be modestly negative. The major economic data released this week was generally weaker than expected, but its impact was minor, and mortgage rates ended a little higher.
The minutes from the September 26 Fed meeting released on Wednesday contained no major surprises, but investors viewed them as slightly more hawkish (meaning in favor of tighter monetary policy) than expected. Fed officials indicated that a gradual path of rate increases remains the appropriate policy given their projected pace of economic growth. What surprised investors a bit was the degree to which Fed officials appeared willing to raise the federal funds rate above the “neutral” rate if needed. The neutral rate is the level which the Fed estimates is balanced between tight and loose monetary policy such that it neither boosts nor restrains economic growth in the long-term. Tighter monetary policy generally is negative for mortgage rates, and rates rose a little due to the minutes.
The most significant economic report this week was the retail sales data, and the results were much worse than expected by nearly any measure. In September, total retail sales rose just 0.1% from August, far below the consensus for an increase of 0.6%. Excluding the volatile auto component, retail sales posted a slight decline from August, which also was well short of the expected levels. Since the data often has wide swings from month to month, though, the reaction was relatively small.
The most recent housing sector data also fell short of expectations. In September, sales of previously owned homes fell 3% from August, and they were 4% lower than a year ago. A major factor holding back home sales has been a lack of inventory in many regions, but the news on this front also was not particularly encouraging.
Housing starts in September were down 5% from August. One piece of relatively good news, however, was that most of the decline came from the multi-family segment, and single-family starts declined just 1%.
Looking ahead, New Home Sales will be released on Monday. Pending Home Sales and Durable Orders will come out on Thursday. The first reading for third quarter gross domestic product (GDP), the broadest measure of economic growth, will be released on Friday. In addition, there will be a European Central Bank (ECB) meeting on Thursday which could influence U.S. mortgage rates.