“There’s something happening here, and what it is ain’t exactly clear.” Buffalo Springfield.
Recent data continues to paint a confusing picture about the state of our economy.
In housing news, April Housing Starts jumped 6.6 percent from March, above expectations. However, year-over-year Housing Starts were down 1.7 percent from April 2015. Building Permits, a sign of future construction, didn’t come in as high as expected. But they still increased from March, rising 3.6 percent to an annual rate of 1.11 million. Similarly, Existing Home Sales experienced their second consecutive month of gains, increasing 1.7 percent from March to April 2016.
Manufacturing is still muddling along, despite the recent decline in the dollar. This is according to key regional manufacturing reports out of Philadelphia and New York, which were worse than expected. A stronger dollar has been blamed for the manufacturing slump, but the problems may be a bit deeper than just currency.
Consumer inflation rose in April at its fastest rate since February 2013. The Consumer Price Index (CPI), which measures the price of a representative basket of goods and services purchased by households, rose 0.4 percent due to higher gasoline prices and rising rents. Core CPI, which strips out volatile food and energy, was in line with expectations. Inflation reduces the value of fixed investments, meaning it is like kryptonite to Mortgage Bonds (and also to home loan rates, which are tied to Mortgage Bonds). It will be important to see if this pop in inflation is a trend.
The Fed will be closely monitoring inflation, housing, manufacturing and more in advance of its June 14-15 meeting. Minutes just released from the April Federal Open Market Committee (FOMC) meeting show several Fed members believe it’s time to raise the Fed’s benchmark Fed Funds Rate when they meet again in June. This is the rate banks lend money to each other overnight. If the Fed takes action, volatility in the markets could rise. Time will tell if this will be good news for Mortgage Bonds and home loan rates.
For now, home loan rates remain near historic lows. If you or anyone you know has any questions about home loan rates or products, please give me a call.