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Low
Inflation Benefits Mortgage Markets
This
week's economic data and comments from Fed officials painted a picture of a
gradually improving economy with very low inflation. March Core CPI
inflation rose at a tame 1.1% annual rate. This economic environment is
favorable for bond markets, and mortgage rates ended the week a little
lower.
While
mortgage rates have dropped over the last two weeks, the move lower has not
been a straight line down. Mortgage rates have been fluctuating sharply
from day to day, and even hour to hour this month. Volatility in mortgage
markets has increased significantly since the end of the Fed's MBS purchase
program on March 31. With the Fed steadily in the market in just one
direction (purchasing, but never selling), other investors were generally
reluctant to take opposing positions. Now that the Fed is on the sidelines,
the market has returned to more normal conditions, meaning that investors
freely react to economic news and changing sentiment.
This
week's housing sector reflected improvement. March Housing Starts exceeded
expectations, rising 2% from February to the highest level since November
2008. Housing Starts were 20% higher than one year ago. Building Permits, a
leading indicator, also beat the consensus forecast. The April NAHB
Homebuilder confidence index jumped to the highest level since September
2009 as home buyers take advantage of tax credits set to expire soon.
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