Geopolitical events were the primary influence on mortgage rates again this week, while the economic data had little impact. After a quiet weekend, investors were willing to take on a little more risk early in the week. Shocking news on two fronts caused an abrupt reversal on Thursday, however, and mortgage rates ended the week just slightly higher.
When a conflict breaks out which could affect global markets, investors generally respond with a “flight to safety”. Uncertainty created by the threat of escalation causes investors to reduce the level of risk in their portfolios. This typically involves shifting from stocks to relatively safer assets such as gold and bonds, including mortgage-backed securities (MBS).
Heading into last weekend, investors were concerned about the possibility of an escalation in the conflict between Israel and Gaza, so they shifted to safer assets. When there was little change in the situation early this week, investors unwound these positions, pushing rates higher. Then on Thursday, Israel announced a ground offensive in Gaza and a Malaysian passenger plane was shot down in Ukraine. These events caused investors to quickly return to safer assets, offsetting much of the earlier rise in rates.
In the US, there was mixed news from the housing sector. The National Association of Home Builders (NAHB) Housing Market Index revealed that builder confidence jumped sharply in July to the highest level since January. Less positive, the Housing Starts data released this week, which covers the month of June, showed a decline of 9% from May. This data can be quite volatile from month to month, though.