Overview: It was a relatively quiet period for mortgage markets over the past week. There were no significant surprises in comments from Federal Reserve Chair Jerome Powell, and the major economic data caused little reaction. As a result, mortgage rates ended the week nearly unchanged.
In semi-annual testimony to Congress, Fed Chair Powell covered a wide range of important topics, but he did not provide any new information to alter the investor outlook for monetary policy. According to Powell, more interest rate increases are likely in order to help bring down inflation. He said that “nearly all” officials expect that it will be “appropriate” to raise rates again by the end of the year. While inflation has “moderated somewhat,” there is still a long way to go to reach the Fed’s target level of 2% annually. Powell also noted that the labor market remains tight and may need to weaken to achieve the Fed’s inflation goals.
Consumer spending accounts for over two-thirds of U.S. economic activity, so the monthly retail sales data is a closely watched measure of the health of the economy. In May, retail sales rose 0.3% from April, above the consensus forecast for a slight decline. Sales of building materials and garden equipment jumped a massive 2.2%, and restaurants posted another strong month. Despite higher prices, an extremely low unemployment rate continues to support consumer spending.
The most recent government data revealed that home building surged in May, far exceeding the consensus forecast for a slight decline. Overall housing starts increased a massive 22% from April to the highest level since April 2022. Single-family housing starts rose 19% from April, and single-family building permits, a leading indicator, increased 5% from the prior month.
A separate survey of home builder sentiment from the National Association of Home Builders (NAHB) also rose far more than expected to the highest reading since July 2022. The chief economist of the NAHB suggests that a lack of previously owned homes on the market has boosted builder confidence. He estimates that about 35% of homes for sale now are newly built compared with typical levels of just 10% to 15%. On the downside, builders listed tighter credit conditions for construction loans and high prices for land, labor, and materials as headwinds for even faster production.
Retail Sales (% change)
June 22 — Existing-Home Sales report
June 27 — New-Home Sales report
Personal Income and Outlays
Personal Consumption Expenditures (PCE) Price Index