Focus on New Virus – January 2020 Edition

The primary influence on mortgage rates this week came from a very unexpected source. Concerns about a new virus spreading in China had a positive impact on rates, while the reaction to the economic data was small. As a result, rates ended the week a little lower.

Last weekend, news stories emerged about the spread of the dangerous new coronavirus in China. As the number of reported cases increased, investors grew more concerned that global economic growth could slow due to decreased travel and export activity in the region. Since slower growth reduces future inflationary pressures, this was positive for mortgage rates.

The most significant economic data released this week came from the housing sector, and lower mortgage rates have helped boost sales activity. In December, sales of previously owned (existing) homes increased more than expected from November and were 11% higher than a year ago. National median existing-home prices were up 8% from a year ago.

A lack of inventory remained a headwind in many regions, as the number of homes for sale fell to just a 3.0-month supply nationally, well below the 6.0-month supply which is considered a healthy balance between buyers and sellers. Inventory is now at the lowest levels since tracking began in 1982.

Thursday’s European Central Bank (ECB) meeting was in line with investor expectations and had little impact on US mortgage rates. As expected, European benchmark rates were held steady. The ECB announced that it will launch the first strategic review of its policy objectives and tools since 2003.

Looking ahead, New Home Sales will be released on Monday. The next Fed meeting will take place on Wednesday. Investors expect that there will be little change in the Fed’s guidance about future policy, but any surprises could affect mortgage rates. First-quarter gross domestic product (GDP), the broadest measure of economic activity, will come out on Thursday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Friday. In addition, news about the coronavirus, the US elections, or the trade negotiations with China could have an influence.

Weekly Change
10yr Treasury fell 0.10
Dow fell 200
NASDAQ rose 25
Mon 1/27 New Home Sales
Wed 1/29 Fed Meeting
Thu 1/30 GDP

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