While the stock market posted nice gains this week, mortgage markets were relatively quiet. Daily volatility remained low, and the change in rates for the week again was small.
One consequence of the reduced economic activity resulting from the pandemic has been a decline in inflation, which has helped keep mortgage rates low. In April, the core PCE price index, the indicator favored by the Fed, was just 1.0% higher than a year ago, down from an annual rate of increase of 1.7% last month. Fed officials have stated that their target level for annual inflation is 2.0%.
While the housing data released this week again confirmed that April was a terrible month for sales activity, it also contained some interesting results that hinted at pent up demand which could provide a lift in coming months. For example, April pending home sales, which measure contracts signed for previously owned homes, plunged 22% from March and were 34% lower than a year ago. By contrast, contracts signed for sales of new homes in April unexpectedly rose slightly from March and were just 6% lower than a year ago. While buyers and sellers often were hesitant about tours of existing homes during the pandemic, the greater availability of contactless visits offered by new homes appears to have made a big difference. In addition, the Mortgage Bankers Association (MBA) reported that mortgage applications to purchase a home have increased for six straight weeks and are up more than 50% from their April lows.
Looking ahead, investors will continue to watch for news about medical advances, Fed actions, government stimulus programs, and plans for reopening the economy. Beyond that, the monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. In addition, the ISM national manufacturing index will be released on Monday and the ISM national services index on Wednesday.
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