Mortgage Rates Level Off

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Retail Sales Fall Short


The recent trend toward higher mortgage rates paused this week. A shortfall in the retail sales data and increased expectations for additional stimulus in Europe were positive for mortgage rates, which ended the week slightly lower.

After strong readings over the summer, retail sales, which account for roughly 70% of economic activity, have been disappointing for the last three months. In October, retail sales, excluding the volatile auto component, rose slightly from September, but the consensus was for a significantly larger increase. This followed declines in both August and September. Recent strong data on job gains and wage growth could lead to an improvement in coming months. 

Weak economic data in Europe released over the past week also helped U.S. mortgage rates. Eurozone GDP growth during the third quarter was below expectations, mostly due to a decline in exports. This resulted in increased expectations that the European Central Bank (ECB) will expand its bond buying program to help boost economic growth. Increased demand for bonds from the ECB lowers yields around the world, including U.S. mortgage-backed securities (MBS). 

Next week, the Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Tuesday. CPI looks at the price change for finished goods which are sold to consumers. Industrial Production, an important indicator of economic activity, also will come out on Tuesday. The Minutes from the October 28 Fed meeting will be released on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. Housing Starts and the Philly Fed index will round out the schedule. 



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