Attractive Mortgage Rates React to Looming Inflation in June 2021

In June 2021, the United States saw attractive mortgage rates alongside continually looming inflation. As a matter of fact, annual inflation rose to its highest level in June since August 2008.

As the world’s largest economy continues its rebound, the United States still feels aftereffects from 2020. However, the economy continues its path to recovery, business restrictions slowly relax, and demand increases both for vaccines and federal assistance.

Investors Focused on Surging Inflation & Attractive Mortgage Rates

In June 2021, investors focused on surging inflation. Core CPI climbed by 0.9% from May. This statistic outperformed the consensus forecast of a 0.5% increase.

Although recent inflation statistics exceeded forecasts, the Fed’s comments on inflation exceeding its 2% target rate soothed investor fears.

Throughout last year, the coronavirus had a significant impact on costs across industries. With the increase in Core CPI, analysts saw notably high prices in items like cars and airline tickets.

Subsequently, core CPI increased by 4.5% over the previous year, achieving its highest level since 1991, up from an annual increase of barely 1.6% in March.

Fed Response to Attractive Mortgage Rates & Inflation

As investors focused on surging inflation, the Fed responded accordingly. During his semiannual address to Congress, Fed Chairman Jerome Powell said it was too soon to start tightening monetary policy. Powell reiterated the U.S. central bank’s dedication to achieving “maximum employment and price stability.” In addition, he stated that achieving sufficient progress toward full employment was still “a ways off.

Powell also acknowledged that “Inflation has increased notably and will likely remain elevated in coming months before moderating”. To that aim, Powell underlined that the Fed would maintain its easy-money policies for some time even as inflation rises above its 2% target rate if that is what it requires to recover the nation’s jobs market from the coronavirus pandemic’s ravages.

On the other hand, the Fed chairman anticipates inflation to decline over time as pandemic-induced imbalances ease.

Investors viewed Powell’s patient attitude toward inflation as an indication that the Fed is not in a hurry to scale back its bond purchase program. At the same time, they see this as good news for attractive mortgage rates.

In response to the global financial crisis, the Fed has purchased up to $120 billion of mortgage-backed securities (MBS) and Treasuries since March 2020. The Fed made these purchases to offset the adverse economic effects of the coronavirus pandemic.

Fed officials have stated several times this year that they will not begin to reduce these purchases until the economy has made “substantial further progress” toward their labor market and inflation goals.

According to the post-meeting statement, the economy “has made progress” toward its goals this year. Mortgage rates reached new lows as a result of increased federal demand for MBS. Nevertheless, investors are keeping a close eye on the prospects of the bond-buying program.

Inflation Reached a New Milestone as GDP Fell Short

Gross domestic product (GDP) represents the broadest measure of economic activity. This year, GDP showed just a 6.5% growth, based on the headline statistic for second-quarter GDP. Therefore, GDP fell short of the 8.5% consensus forecast.

However, the report’s details shed light on the shortage. It clarified that much of the shortfall was due to areas that simply postponed growth to future quarters.

For example, supply shortages caused delays in the production of cars, homes, and a variety of other goods. As a result, inventory drawdowns fell by 1.2% in the third quarter. Eventually, the economy plans on replacing these inventories, and when this occurs, it will realize future economic activity.

The underlying demand remained relatively high. Personal consumption expenditures increased by 11.8%. The size of the economy increased more in the second quarter of 2021 than it before the pandemic. However, early projections for third-quarter GDP growth point to an even stronger annual rate of 7.0%.

In June 2021, core PCE increased by 3.5% higher than the previous year. Having said that, the increase was slightly lower than the consensus forecast.

On the other hand, core PCE increased from an annual increase of 3.4% last month, while the yearly growth rate in February 2021 was only 1.5%.

Subsequently, inflation core PCE rose to its highest annual rate in decades. However, economists expected readings of this magnitude during the economic reopening. Besides that, economists have differing views on whether the higher inflation is temporary or set for the long term.

Retail Trade Gains Alongside Attractive Mortgage Rates

In June 2021, U.S. retail trade gained 0.6% from a month earlier. This follows a revised 1.7% drop in May, Overall, retail sales handily outperforming market forecasts of a 0.4% drop. The demand for products stayed high despite consumers recently switching their spending from goods to services. The term “goods” describes retail sales. Meanwhile, “services” refers to travel and entertainment.

Retail sales performed better than forecasted early this year. As a result, the National Retail Federation (NRF) updated its annual projection for 2021. The NRF predicts that retail sales will rise between 10.5% and 13.5% this year. In conclusion, the NRF expects retail sales to fall between $4.44 and $4.56 trillion.

2021’s retail sales data gained 18% higher than the previous year. In addition, retail sales rose above levels seen before the coronavirus pandemic. In light of current conditions, analysts find the solid retail sales results to be impressive.

Furthermore, chips and components hit a shortage in the auto sector. As a result, auto manufacturers produced fewer new vehicles. This led to slower auto sales.

Housing Indicates Strength with Attractive Mortgage Rates

The United States housing sector indicates economic strength. People are more likely to buy houses, remodel their current homes, or acquire bigger houses when the economy is robust. Concurrently, better housing numbers correlate to future optimism. However, when people are worried about the economy, new home building, remodeling, median pricing, and housing sales all suffer.

Home Sales

Home sales increased slightly in June compared to May. 2021 already saw four months of home sales declines. To be precise, June’s home sales increased by 23% over the previous year.

As home sales resumed their upward trend, several trends emerged due to the tight housing market conditions. Purchases made entirely with cash accounted for 23% of total sales. Historically, this far exceeded 2020’s 16% distribution. Additionally, investors contributed 14% of sales this year, up from 9% last year. 

Furthermore, sales of homes priced between $100,000 and $250,000 dropped 16% lower from a year prior. While home buyers experienced low, attractive mortgage rates, rising prices and investor competition made purchasing difficult. This was notably evident at the lower end of the market, according to analysts.

On the other hand, sales of homes valued between $750,000 and $1,000,000 increased by 119% during that time.

Due to the pressing need for more homes in many areas, investors were paying close attention to the monthly reports on housing starts. The most recent statistics revealed mixed results, with housing starts increasing by 6% in June 2020 compared to May. This is a 29% improvement over the previous year’s result.

However, building permits decreased by 5% from May to the lowest level since October 2020. According to builders, construction is being slowed by rising prices and shortages of land, materials, and skilled labor.

Housing Inventory

The U.S. housing market is still far from average, with inventories declining historically. More purchasers are joining the market as the economy improves. And, even in a low-interest-rate setting, home prices continue to climb due to a limited supply of housing inventory.

Overall, home inventory declined 19% from last year. As a result, national home inventory levels have dropped to a 2.6-month supply. However, analysts consider a 6-month supply to be a healthy balance between buyers and sellers.

The median existing home price rose 23% higher than last year at this time. Finally, the median current home price reached an all-time high of $363,300, setting a new record.

Employment Plays Vital Role While Economy Sees Attractive Mortgage Rates

The job market is an integral part of every economy, and it is inextricably linked to consumer demand for goods and services. Employment plays a vital role in economic growth.

Strong Job Gains

Despite significant labor shortages, hiring in the United States increased in June. Companies added 850,000 positions in the face of reducing COVID-19 cases, a recovering economy, and rising vaccination rates. This figure surprisingly exceeded the consensus forecast of 700,000.

As a result, the economy has reached its highest level since August 2020. Hospitality and education achieved particular strengths.

On the other hand, the unemployment rate grew from 5.8% to 5.9%. Even though this statistic rose higher than expected, it still faced a slight decline. Thus, more people joined the workforce.

Finally, average hourly earnings increased by 3.6% higher than a year ago, in line with expectations. In addition, average hourly wages increased from 1.9% last month to 2.0% this month.

Consumer Confidence Surges

According to key economic reports, U.S. consumer confidence unexpectedly increased this month due to solid job gains. As a result, consumer confidence reached its highest level since February 2020. Bond investors felt pleased by the results.

In part, analysts attribute this to the ongoing vaccine distribution. Also, the U.S. economy continues to reopen. Finally, consumers are more optimistic about the economy and labor market, especially in light of recent job gains.

According to the survey, most consumers plan to increase their spending. Economists notice a particular emphasis on pandemic-restricted areas, such as travel and dining out.


Besides the significant job gains, the Institute of Supply Management (ISM) released another crucial economic report. The report indicated that manufacturing stayed at a record-high, as expected.

The national manufacturing index came in at 60.6. Readings above 50 indicate that the industry is expanding. Of note, many companies faced difficulties hiring enough workers to meet rising demand.

Service Sector

The service sector witnessed fantastic expansion while mortgage rates declined. With the latest national service sector index report, courtesy of the Institute of Supply Management’s (ISM), this sentiment was highlighted.

This national service sector index dropped to 60.1. Unfortunately, the consensus forecast was 63.5. However, by historical standards, the national service sector index remains relatively high.

Also, readings above 50 indicate that the economy is expanding. However, many companies still have difficulties hiring enough employees, making it challenging to keep up with growth.

Investors worry that the spread of COVID-19 will slow global growth. In addition, the start of the third quarter contained talks of portfolio rebalancing. As a result, the portfolio rebalancing increased bond demand.

Overall, economic data appeared a bit weaker than expected while weekly economic news came out favorable for attractive mortgage rates.

Mortgage-Backed Securities

According to analysts, even while the service sector witnesses fantastic expansion, Fed officials do not believe it is time to tighten monetary policy. They drew this conclusion from the June 16th Fed meeting. Overall, Fed officials feel that they haven’t made enough progress toward their employment and inflation goals.

The minutes also noted that the Fed intends to “provide notice well in advance” of an announcement to reduce bond purchases. In addition, Fed officials felt divided on how to handle mortgage-backed securities.

On the one hand, they debated whether mortgage-backed securities (MBS) and Treasuries should be scaled back in equal proportions.

Never miss an update related to the attractive mortgage rates seen throughout the country. To receive by-the-minute updates on mortgage-backed securities, try MBSQuoteline free for 14 days.

Stay connected with MBSQuoteline on social media by following us on FacebookTwitter, and LinkedIn.

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission. To learn more MBSQuoteline, please contact our mortgage-backed securities company at 800.627.1077 or