Overview: The biggest influence on mortgage rates over the past week was inflation data from Europe. Consumer prices in the U.K. increased at the highest annual rate since 1982, which caused global bond yields to rise. The key U.S. report on retail sales came in close to expectations, and the reaction was small. As a result, mortgage rates ended the week a little higher.
Since consumer spending accounts for over two-thirds of U.S. economic activity, it is an important indicator of the health of the economy. In July, retail sales were flat from June, which was close to expectations. A large decline in the dollar value of gas sales was a big factor in the results, but this was due to falling gas prices, a positive for the economy. Consumers spent more on other items, leading to significant increases in online sales and at miscellaneous stores.
Additional housing inventory is badly needed in many regions, but the most recent news was not encouraging. In July, overall housing starts dropped 10% from June, well below the consensus forecast. Single-family starts declined to the lowest level since June 2020. In addition, the National Association of Home Builders (NAHB) housing index showed that builder confidence fell for the eighth straight month from 55 to 49, the lowest level since early in the pandemic. Once again, builders reported that increased construction costs and a shortage of skilled labor remained major obstacles.
The minutes from the July 27 Federal Reserve meeting released on Wednesday contained no surprises. Investors have been looking for hints about how high the Fed will raise the federal funds rate and how long they expect to keep it at restrictive levels to fight inflation. However, the minutes simply said that future policy decisions will be based on incoming economic data without providing more precise guidance.
Retail Sales (% change)
Aug 18 — Existing-Home Sales report
Aug 23 — New-Home Sales report
Aug 26 — Core Personal Consumption Expenditures (PCE) Price Index