Economic Commentary for May 29th, 2014: More Stimulus from ECB Expected

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The decline in mortgage rates this year has caught investors by surprise. Due to increased expectations for additional monetary stimulus from the European Central Bank (ECB), the improvement continued this week, dropping mortgage rates to the lowest levels since last summer.

While the economic recovery in the U.S. has been a bit choppy, most investors and Fed officials anticipate sustained growth in the 2% to 3% range for several years. The outlook in Europe is not as optimistic, however. In response to slow economic growth and the risk of deflation, ECB officials have increased their support for additional monetary stimulus. Investors expect new measures to be announced as soon as next week. One option is a bond purchase program similar to the one used in the U.S. over the last few years. Bond yields around the world have moved lower due to the potential added demand from the ECB.

Home sales data for April was released over the past week. April Existing Home Sales rose modestly from March, the first monthly increase this year, and April New Home Sales increased 7% from upwardly revised March figures. Perhaps more significantly, total inventory of existing homes available for sale surged 17% from March to a 5.9-month supply.

Looking ahead, two major events loom on the horizon. There will be an ECB meeting on June 5. Investors will be looking for news about additional measures to stimulate the economies of the region. In the U.S., the next Employment Report, the most important economic data of the month, will be released on June 6. Finally, while Sunday’s elections in Ukraine took place with relatively few incidents, tensions in the region remain high. A flare up could affect mortgage rates.

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