Spending Bill 

Despite a lack of major economic reports, it was another volatile week for mortgage markets. Investors reacted daily to the latest news about the proposed government spending bill, until tariffs reclaimed the spotlight on Friday. The net result, though, was that mortgage rates ended the week just slightly higher.  

The focus of investors continues to shift rapidly. Last month, higher tariffs and a trade war appeared likely to slow economic growth, reducing future inflationary pressures, which would be good for mortgage rates. However, easing trade tensions with China and other countries had reduced those worries in recent weeks, and attention turned to the new government spending bill. Investors anticipate that proposed tax cuts could add trillions of dollars to the deficit and boost economic growth, both of which would be negative for mortgage markets. The government finances its deficit by issuing bonds, and yields generally must rise to entice investors to purchase larger quantities. The latest abrupt shift for investors took place on Friday morning when President Trump recommended raising tariffs on the European Union to 50% beginning June 1 due to a lack of progress on negotiating trade deals. 

Sales of new homes displayed much better performance in April, rising 11% from March, far above the consensus forecast. New home sales were 3% higher than a year ago. The median new-home price of $407,200 was down 2% from last year at this time. The supply of new homes remains near the highest level since 2007.

The latest home building data was in line with expectations. Overall housing starts in April rose 2% from March, while single-family starts sank 2% to the lowest level since July 2024. Single-family building permits, a leading indicator of future construction, dropped 5% from March. A separate survey of home builder sentiment on housing market conditions from the NAHB unexpectedly plunged to the lowest level in 18 months. Builders reported that uncertainty about tariffs and rising costs made it difficult to price their homes.

Investors will continue to look for additional information about tariff policies. For economic reports, Consumer Confidence and Durable Orders will come out on Tuesday. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will be released on Friday. Mortgage markets will be closed on Monday for Memorial Day.