With a wide range of news this week, mortgage rates experienced a great deal of volatility. Congress reached a deal to fund the government, there was a European Central Bank meeting, and major economic data was released. These influences were offsetting, though, and mortgage rates ended the week with little change.
While sales of previously owned homes in December did not keep up with the exceptional pace seen in November, they still were at the highest level since June. For the entire year, sales in 2017 overall were the strongest since 2006. This took place despite the fact that unsold inventory at the end of the year was at just a 3.2-month supply, which was the lowest level since tracking began in 1999.
One big reason that so many people are buying homes is that the economy is performing well. Friday’s report on gross domestic product (GDP), the broadest measure of economic growth, revealed an increase of 2.6% during the fourth quarter of 2017. This was less than expected, but the shortfall was entirely due to a drawdown in inventories. Since inventory levels eventually must be replaced, a decline in one quarter simply means that there will be additional growth in the future to offset it. Of much greater importance, both consumer and business spending was strong during the fourth quarter.
Two other events this week contributed to the volatility, but had little net effect on mortgage rates. After shutting down on Friday at midnight, the government reopened on Monday, as the Senate reached an agreement to extend funding until February 8. The deal included a provision to address immigration before that date, however, meaning that it may be even more difficult to gather enough votes to pass the next funding bill. On Thursday, the European Central Bank (ECB) made no policy changes, as expected. The ECB also provided very little new information in terms of guidance about future policy, and the net impact on U.S. mortgage rates was minor.
Looking ahead, there will be a Fed meeting on Wednesday. No change in policy is expected, but investors will be looking for guidance about the pace of future rate hikes. The important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the Core PCE price index, the inflation indicator favored by the Fed, will be released on Monday. The ISM national manufacturing index will come out on Thursday.
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