Last week’s movement in mortgage rates was mostly due to a more “dovish” investor outlook for the European Central Bank (ECB), as the domestic economic data caused little reaction. Mortgage rates ended the week lower.
For years, the ECB has had a program in place to purchase massive quantities of bonds. The most recent extension of the program consists of buying 60 billion euros per month through December. This added demand has helped push bond yields lower around the world, including U.S. mortgage rates. Investors have been speculating for months about when the ECB will begin to scale back (taper) its bond purchases. On June 27th, ECB President Draghi surprised investors by indicating that the extension of the bond purchase program next year might be at reduced monthly levels, and global bond yields moved higher. However, recently comments from ECB officials have become more dovish, meaning that the ECB may be less eager to scale back its stimulus programs as soon as some investors had thought. At Thursday’s ECB meeting, Draghi provided just the vague guidance that the discussion about tapering should take place “in the fall.” The apparent lack of urgency to taper helped mortgage rates improve over the last two weeks, nearly back to the levels seen before the comments on June 27th.
One of the few bright spots in the recent U.S. economic data came from the housing sector. Despite a lack of inventory in many markets, a disturbing trend had appeared to be developing, as housing starts had declined in March, April, and May. However, the report for June released on Wednesday suggested that the three months of declines merely reflected that the data is highly volatile over the short-term. In June, single-family housing starts jumped 6% from May, and the results for May were revised higher as well. Single-family housing starts were 10% higher than a year ago.
Looking ahead, the next Fed meeting will take place this Wednesday. No change in the federal funds rate is expected, but investors will be looking for guidance about future monetary policy. The first reading for second quarter GDP, the broadest measure of economic activity, will be released on Friday.
Please reach out with any questions in regards to this, or if there is anything we can do for you and your valued clients.
Thank you for your continued support, have a productive week.
SVP, Regional Manager
THE CRAWFORD TEAM
V.I.P. Mortgage, Inc.