Sales of New Homes Surge

Following a volatile period due to increasing expectations for federal funds rate hikes by the Fed, mortgage markets were relatively quiet over the past week. Speeches from Fed officials, encouraging U.S. housing reports, and disappointing European data caused only a small reaction in mortgage rates. Mortgage rates ended the week slightly lower.

The housing data over the last few days was a pleasant surprise. In April, sales of both new and existing homes exceeded expectations. Annualized sales of new homes rose a surprising 17% over March, to the highest level since January 2008. This is normally a volatile number month to month, but this amount of growth can only be viewed as very positive. Sales of existing homes also grew in April. This was the second month in a row for growth in sales of existing homes.

Due to improvement in the U.S. economy, Fed officials have been seeking to boost investor expectations for rate hikes this year. The European Central Bank (ECB) is in a different position. The most recent reading for the PMI index in the euro zone dropped to a 16-month low. The PMI is a composite of services and manufacturing activity. The decline took place despite increasing levels of stimulus from the ECB. The weak economic growth in the euro zone leaves ECB officials considering whether more stimulus is needed. Low euro zone inflation and significant central bank stimulus have caused European bond yields to drop to very low levels. This has helped to keep down U.S. bond yields, including mortgage rates.

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