Italian political woes
US mortgage rates are benefitting from political turmoil in Italy. Over the weekend the Italian President blocked the formation of a coalition government that would have given more power to the anti-European Union parties. Remember what happened to US interest rates 3 years ago when Greece threatened the stability of the union? (hint: they were lower.)
Interest rates in Italy and Spain spiked over the weekend which has prompted a flight to safety in the global financial markets. Anytime uncertainty grows the US tends to benefit because it is considered a relatively safe place to invest capital. As a result of heightened demand for US securities, including mortgage-backed bonds, mortgage rates have improved.
Earlier today the most recent version of the S&P Case-Shiller Home Price index was released. The data showed continued gains in home prices across the nation. According to the report home prices in Portland increased by 6.7% over the past twelve months. Seattle showed the highest appreciation at 13%.
As long as the supply of homes for sale remains low I expect home prices to hold firm.
The Week Ahead
The economic calendar is full of significant releases. On Wednesday we’ll get the Fed’s beige book and the ADP employment report. On Thursday we’ll see personal income, core inflation, and pending home sales. On Friday we get the all-important jobs report.
The drama in Italy could overshadow these reports. For now we’ll recommend floating as momentum is on our side. However, I don’t expect the longer-term trend of rates worsening to change.
Current Outlook: floating