Retail Sales Rise

Stronger than expected inflation data and a new fee on refinances were negative for mortgage rates this week, while the key report on retail sales caused little reaction. After reaching record low levels last week, rates have moved higher.

The reduced economic activity resulting from the pandemic has caused a significant decline in inflation, but there are signs that it may be on its way back up. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. In July, core CPI still was just 1.6% higher than a year ago, down from readings consistently above 2.0% prior to the pandemic. This was much stronger than expected, however, and up from a reading of 1.2% last month. Since higher inflation is negative for mortgage rates, they rose after the news. 

On Wednesday, the Federal Housing Finance Agency (FHFA) announced that a new refinance fee of 0.5% will be assessed for cash-out and no-cash-out refinances sold to Fannie Mae and Freddie Mac after September 1. Lenders have varied in how quickly they are passing along this fee to consumers, influenced in part by their current pipeline and their capacity to handle additional volume.

Looking ahead, investors will continue watching for news about medical advances, government stimulus programs, Fed monetary policy changes, and plans for reopening the economy. Beyond that, it will be a very light week for economic data with the housing sector in the spotlight. Housing Starts will be released on Tuesday and Existing Home Sales on Friday.