By Michael Neal | NAHB
Information provided by the Federal Housing Financing Agency indicates that mortgage rates on purchases of newly built homes ticked up by 3 basis points over June to 4.03 percent. However, at this level, rates remain below the 4.18 peak level recorded in February. Meanwhile, a more commonly used rate reported by Freddie Mac indicates that mortgage rates fell in June. Despite some monthly divergence, the two series track each other.
A previous post highlighted the role that inflation played in determining mortgage rates since rates began a multi-month increase in October 2016. Stronger inflation contributed to the increase in mortgage rates between October 2016 and February 2017 and weaker inflation accounted for the decline in rates in the 3 months since February 2017. This analysis was predicated on the fact that changes in the rate on the 10-year Treasury note had a larger impact on mortgage rates than changes in the mortgage risk premium.
In addition to assessing the inflation and the “real” component of the 10-Year Treasury note rate, analysts can also compare the 10-Year Treasury note rate with the rate on the 3-month Treasury bill. The economic interpretation is that the rate on the 3-month Treasury bill reflects the market’s view of the economy in short-run, while the spread between the two rates represents the market’s view of economy’s performance in the longer-run relative to the economy’s performance in the shorter-run.
