The Mortgage Rate Roller Coaster



Mortgage rates were influenced by a wide range of factors this week, resulting in a good deal of volatility. Violence in Iraq, comments from the Bank of England, divergent US Treasury auction results, and mixed US economic data all had an impact this week. Overall, the unfavorable news slightly outweighed the favorable, and mortgage rates ended the week a little higher.

Improvement in the labor market is clearly good for the economy, but it is a negative factor for mortgage rates. Following solid job gains in last week’s Employment report, this week’s indicators also suggested that the labor market is gaining strength. The JOLTS report measures job openings and labor turnover rates. Because it helps to construct a more well-rounded view of labor market conditions, Fed Chair Yellen is a fan of this data. It showed that job openings jumped to 4.5M in April. This was the highest level in seven years. In addition, a May survey of small businesses revealed that optimism rose to the highest level since September 2007. Small businesses are an important source of job creation.

While many factors affected mortgage rates this week, it was notable that one formerly significant report has lost much of its influence. The May Producer Price Index (PPI) showed a decline from April, while the forecast was for a small increase. This followed a much larger than expected increase in April. At the start of the year, the calculation of PPI was changed to include price changes in services in addition to goods. PPI now captures roughly 75% of the economy, up from around 33%, but the new components make the measure much more volatile month to month. As a result, investors are less likely to react to swings in the PPI data.

May Retail Sales showed another monthly increase
Core PPI inflation was 2.0% higher than one year ago
Household net worth rose to a record high during the first quarter
Violence in Iraq pushed oil prices up to the highest level in one year


Next week, the big news will be Wednesday’s Fed meeting. Investors will be looking for hints about when the Fed will begin to raise the fed funds rate. The biggest economic data next week will be Tuesday’s release of the Consumer Price Index (CPI), the most closely watched monthly inflation report. Industrial Production, Housing Starts, and Philly Fed also will come out next week. In addition, investors will be keeping a close eye on the violence in Iraq. Further escalation could cause investors to shift to safer assets.


Compliments of:

Stephen Albeck

Mortgage Loan Officer
NMLS ID: 659357


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