After a dreadful start to the month of May, mortgage markets improved last week, pushing mortgage rates lower overall.
It was the first week since late-April in which mortgage rates fell.
The biggest reason rates improved last week was because the economic optimism that was responsible for the stock market’s 30% gain since March faded somewhat.
Retail Sales came in weaker-than-expected as did Initial Jobless claims. Both of these data points show that the economy may not be recovering as quickly as investors had wanted to believe.
Combined with gas prices ballooning more than 10 percent over the last 3 weeks, it’s clear that consumer spending will be muted this summer and into fall.
Consumer spending is important because it accounts for two-third of the economy. If it’s slowed for any reason, the economy is less likely to emerge from the current recession as quickly as had been anticipated.
This is good news for mortgage rates because a slow economy tends to draw investors out of stocks and into bonds, including the mortgage-backed kind. More mortgage bond demand leads to higher bond prices and, therefore, lower bond yields and mortgage rates.
This week, there isn’t much data to watch and, because of Memorial Day, trading will be very light towards Thursday and Friday.
It’s during “calm” weeks like this that mortgage rates can make huge movements up or down. With no official announcements against which traders can make bets, every piece of news is a surprise.
If you’re still floating a mortgage rate, take some risk off the table by locking in this week.
