Mortgage bonds are holding their recent gains this morning, fueled by the Consumer Price Index (CPI) showing that inflation is still anemic. On a month over month basis, inflation grew at 0.2%. On a year over year basis, the headline number was 0.0%. The Core Rate, which strips out food and energy prices, grew at 0.2% for the month with a year over year increase of 1.7%. All these numbers are well below where the Fed would like them to be, and certainly much lower than the 2% target rate of inflation they have been shooting for. Considering that Quantitative Easing is now behind us and that oil prices are now falling even further, the near term outlook for inflation is looking to be very weak. This makes it difficult for the Fed to justify a rate hike.
Housing data released this morning showed continued strength in the housing market. The FHFA House Price Index was reported up 0.3% for the month of January. On a year over year basis, home prices were up 5.1%. In addition, New Home Sales for the month of February were reported to be up a whopping 8% at a 539,000 unit pace. This was much better than the market anticipated and the strongest number we have seen in nearly 8 years! In addition, last month’s number was revised even higher. This is great news as we move into the busy summer months of home buying and new construction. With low mortgage rates fueling many to take action, it could be a great season for the housing market.
Mortgage bonds are now well above their next floor of support, and the 10 Year Treasury Note Yield is heading lower in a large trading channel. This is great news for mortgage rates and makes this a great opportunity to lock if you need to close soon. If you have time, we may see a bit more improvement before we hit resistance. As always, watch the markets closely, as sentiment can reverse quickly.