Overview: Over the past week, two key factors were negative for mortgage rates: an upcoming reduction in Federal Reserve bond purchases and signs that higher inflation will likely persist. The recent economic data had little influence. As a result, rates ended the week significantly higher.
Near the start of the pandemic, the Fed began buying $120 billion of Treasuries and mortgage-backed securities (MBS) each month to help support the economy. As the recovery has progressed, officials have said that the need for this stimulus has declined. At the last meeting on September 22, the Fed statement said that “a moderation in the pace of asset purchases may soon be warranted,” and investors interpreted this to mean that it will begin to taper (scale back) its bond purchases in either November or December. This would reduce the future demand for bonds, and investors reacted by pushing yields higher over the past week.
In addition, Fed officials lately have increasingly acknowledged that elevated levels of inflation may persist for longer than originally anticipated. Fed Chair Jerome Powell noted in particular that disruptions to the supply chains for many items have been worsening rather than improving, limiting the supply of cars, appliances, and a wide range of other products. According to Powell, prices for these items likely will remain unusually high until production is able to resume at a more normal pace. Since inflation is negative for bonds, this was another source of upward pressure on mortgage rates this week.
Sales of new homes were very strong early in the year, but the pace has faltered in recent months due to tight supply and high prices. In August, new-home sales rose modestly from July, slightly exceeding the consensus forecast, but still far below the level seen a year ago. The median sales price ($390,900) was 20% higher than last year at this time, at a new record.
New-Home Sales (thousands)
Core Personal Consumption Expenditures (PCE) Price Index
Institute for Supply Management (ISM) Manufacturing Index
Personal Income and Outlays
Construction Spending report
ISM Services Index