The lack of progress in Congress on reaching an agreement on the budget and the debt ceiling was the focus for investors this week. The resulting uncertainty caused investors to shift to safer assets, which helped mortgage rates end the week lower.
After a week filled with market moving comments from Congressional leaders, the Republicans and the Democrats still appear to be far apart on bills for next year's budget and for raising the debt ceiling. If no deal is reached, some government functions may soon lose their funding. It is difficult to predict the degree to which this would impact the economy, but it likely would slow growth. Investors reacted to the uncertainty by selling riskier assets such as stocks and purchasing relatively safer assets including mortgage-backed securities (MBS). Since mortgage rates are mostly determined by MBS prices, rates improved.
Overshadowed by the impasse in Washington, the housing data released this week continued to show solid results. August New Home Sales rose 8% from July and were 13% higher than one year ago. August Pending Home Sales declined a little from July, but they were still 6% higher than one year ago. The Case-Shiller 20-city home price index was 12.4% higher than one year ago, which was the largest increase since February 2006.