POST TAGSMarket Updates
Blog posted On February 27, 2023
Mortgage rates trended higher last week after the inflation numbers on the personal consumption expenditures (PCE) index climbed in January. Consumer spending also surged in January. Existing home sales slipped while new home sales jumped, and existing home inventory showed signs of recovery. This week, important data on home prices will be released.
The PCE index is the Federal Reserve’s preferred method of measuring inflation, so when it showed unexpected increases last week, mortgage-backed securities and mortgage rates took a negative turn. Inflation is the enemy of rates and bonds. For a couple months, things were looking up with cooler inflation numbers on both the consumer price index (CPI) and PCE index. This contributed to the downward rate trend throughout December and January. For most of February, rates have been trending higher. This is largely due to the strong jobs reports and the most recent PCE index. In general, a stronger economy leads to higher rates. Consumer spending in January also soared – up 1.8% following December’s 0.1% decrease. This marks the biggest gain in nearly two years. "Clearly, tighter monetary policy has yet to fully impact consumers and shows that the Fed has more work to do in slowing down aggregate demand," said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. "This report all but ensures the Fed will continue on its rate hiking campaign for a lot longer than markets anticipated just a few weeks ago."
In other news, existing home sales had an unexpected drop in January, which allowed the inventory of existing homes to gain some much-needed strength. New home sales, on the other hand, soared in January. Earlier today, we got huge news on pending home sales, which soared 8.1% month-over-month in January, far beyond the 1% gain that was expected. This likely suggests an uptick in future sales in the coming months.
What else is to come this week? Important data from the Case-Shiller home price index tomorrow. In November, home price appreciation decreased by 0.5% month-over-month. It’s expected to decrease at the same pace in December.
Stay tuned for more important updates and let us know if you have any questions in the meantime!
Sources: Bloomberg, Mortgage News Daily, Mortgage News Daily, Reuters