This week’s economic data and comments from Fed officials painted a picture of a gradually improving economy with very low inflation. March Core CPI inflation rose at a tame 1.1% annual rate. This economic environment is favorable for bond markets, and Austin mortgage rates ended the week a little lower.

While Austin mortgage rates have dropped over the last two weeks, the move lower has not been a straight line down. Austin mortgage rates have been fluctuating sharply from day to day, and even hour to hour this month. Volatility in mortgage markets has increased significantly since the end of the Fed’s MBS purchase program on March 31. With the Fed steadily in the market in just one direction (purchasing, but never selling), other investors were generally reluctant to take opposing positions. Now that the Fed is on the sidelines, the market has returned to more normal conditions, meaning that investors freely react to economic news and changing sentiment.

This week’s housing sector reflected improvement. March Housing Starts exceeded expectations, rising 2% from February to the highest level since November 2008. Housing Starts were 20% higher than one year ago. Building Permits, a leading indicator, also beat the consensus forecast. The April NAHB Homebuilder confidence index jumped to the highest level since September 2009 as home buyers take advantage of tax credits set to expire soon.