“Rise up.” (Lin-Manuel Miranda) Recent tax cuts and a strong labor market helped retail sales rise in May.

Retail Sales - January through May 2018The Commerce Department reported that retail sales jumped 0.8 percent from April to May, well above the 0.4 percent expected. From May 2017 to May 2018, retail sales were up 5.9 percent. When stripping out autos, retail sales jumped 0.9 percent. If consumer spending continues in a similar fashion, the U.S. economy will continue to grow at a solid pace in the months ahead.

As expected, the Fed raised the benchmark federal funds rate by 0.25 percent, bringing the new target range to 1.75 to 2 percent. The fed funds rate is the short-term rate at which banks lend money to each other overnight. It is not directly tied to long-term rates on consumer products like purchase or refinance home loans. The Fed noted that the economy is doing well and that investors should look for four increases to the federal funds rate this year, up from the three previously mentioned.

The Fed also raised the inflation forecasts for 2018 and 2019. The May Producer Price Index, which measures wholesale inflation, rose 3.1 percent on an annual basis, the largest increase since January 2012.

The more closely watched Consumer Price Index (CPI) rose 2.8 percent annually. Core CPI, which strips out volatile food and energy prices, rose 2.2 percent annually. However, the monthly CPI reading was a bit muted, showing inflation rose 0.2 percent from April to May, below expectations.

The key takeaway is that inflation reduces the value of fixed investments like mortgage bonds. Since home loan rates are tied to mortgage bonds, rising inflation could lead to an uptick in rates, which is why inflation data is always important to monitor.

For now, home loan rates remain near historic lows.

This week’s calendar is dominated by housing data.

  • Look for the NAHB Housing Market Index Monday, Housing Starts and Building Permits Tuesday, and Existing Home Sales Wednesday.
  • On Thursday, weekly Initial Jobless Claims will be released along with regional manufacturing news from the Philadelphia Fed Index.

If you or someone you know has any questions about home loan rates, please give me a call. I’d be happy to help.

Related Articles

This past week, home loan rates ticked up again despite the Fed recently cutting rates by a full point and the 10-year Note remaining just above 1%. Why? Mortgage backed securities (MBS) are bonds that price home loan rates. This week, the spread or difference in yield between the 10-year…
Read More of the post Coronavirus and Extreme Volatility

The continued strength of the labor market, along with historically low mortgage rates, will keep positive housing momentum alive in 2020. The Unemployment Rate is currently at a 50-year low of 3.6% with expectations for the index to push even lower to 3.25% by year's end, matching lows last seen…
Read More of the post A Great 2020 Housing Story

Home loan rates continue to hover near three-year lows. There are some on Wall Street who say rates are going to push even lower at some point — and they may be right. But what if they're wrong? What if rates have bottomed for the foreseeable future? Yes, locking a…
Read More of the post What the Market Is Saying

Bonds love uncertainty and bad news. As a result, rates improve when not-so-good news emerges. That was the story this past week, as China has reported a new deadly coronavirus has started to spread in their country. The virus, which spreads through human contact, has taken several lives and has…
Read More of the post Uncertainty Helps Rates

We recognize this is a difficult time for many people. Click here or call 866-913-2951 for more information and to learn about current options available to our borrowers.