During a light week for economic data, investors were mostly focused on the Fed minutes and the trade talks. There were few surprises on any front, though, and mortgage rates ended nearly unchanged.
The most significant economic report released this week was the report on existing home sales, and it was modestly disappointing. In January, sales of existing homes declined a little from December to the lowest level since November 2015 and were 9% lower than a year ago. The news was better in other areas of the report, as median home prices and inventory levels were higher than a year ago.
The chief economist of the National Association of Realtors suggested that home sales have reached a “cyclical low” in January. This means that he expects sales to rise in coming months, and there are a number of positive factors in place which support his view. Several temporary events such as unusually high stock market volatility and the government shutdown may have caused buyers to proceed more cautiously over the last few months. Longer-term trends such as rising income levels and shifting demographics also could favor stronger home sales.
The detailed minutes from the January 30 Fed meeting released on Wednesday did not change the outlook for monetary policy formed by investors following the actual meeting three weeks earlier and had little impact on mortgage rates. According to the minutes, Fed officials have become less certain about the health of the economy and said that it was “not yet clear” whether additional federal funds rate hikes will be needed this year. Some reasons for concern that they discussed included weakness overseas, trade tensions, and fading stimulus effects from last year’s tax cuts.
Another round of trade talks between the U.S. and China began this week, as the two sides race to reach a deal before the end of the month. An increase in U.S. tariffs on Chinese goods is scheduled to take place on March 1, but President Trump recently has hinted that this deadline could be postponed. A trade deal likely would lead to faster global economic growth, which would raise the outlook for future inflation. As a result, progress in the negotiations is viewed as negative for mortgage rates, and vice versa.
Looking ahead, it will be a busy week. Housing Starts will be released on Tuesday and Pending Home Sales on Wednesday. Fourth quarter gross domestic product (GDP), the broadest measure of economic growth, will come out on Thursday. The ISM national manufacturing index and the Core PCE price index, the inflation indicator favored by the Fed, will be released on Friday. In addition, Fed Chair Jerome Powell will deliver his semiannual testimony to Congress on Tuesday and Wednesday. Investors also will be closely watching for signs of progress in the trade talks between the U.S. and China.
The government shutdown which began on December 22 and ended on January 25 has caused delays in the release of some economic reports produced by government agencies and likely will continue to do so until the affected agencies get caught up. It is generally not known when the postponed data will be ready to be released.