While weaker than expected economic data pushed mortgage rates lower last week, concerns about the coming supply of debt needed to pay for government programs moved mortgage rates higher this week, leaving rates nearly unchanged over the past two weeks.

This week, the economic data had little impact, but mortgage rates moved higher for a variety of other reasons. The Treasury announced a huge $101 billion in auctions next week, meaning additional supply for the market to absorb. Compounding the problem, the UK was placed on the watch list on Thursday for a possible downgrade of the credit rating for its debt, due to its high level of government debt. A lower credit rating implies greater risk, pushing yields higher. Investors are now concerned that the US also may be at risk of a downgrade. Finally, there was hope that the Fed would step up its asset purchases, but the Fed held steady its level of Treasury and mortgage-backed security (MBS) buying this week, disappoint ing many investors.

The housing data released this week was mixed. While April Housing Starts and Building Permits fell to record lows, the weakness came from multi-family units. Construction of single-family homes actually rose 3% from March, its second consecutive monthly increase. In addition, the National Association of Home Builders (NAHB) may confidence index rose to the highest level since September 2008.

Last week, the Secretary of the Department of Housing and Urban Development (HUD) announced that home buyers would be able to use the $8,000 first-time home buyer tax credit for down payments on FHA loans through the use of bridge loans. HUD also posted the information on its website (HUD Mortgagee Letter 09-15). Since then, HUD has completely removed the information from its website. While no official explanation has been given, it appears that HUD and the IRS need more time to research the details of the program before moving forward.

Next week, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. Existing Home Sales and New Home Sales will come out on Wednesday and Thursday, respectively. Durable Orders, an important indicator of economic activity, will be released on Thursday. The Chicago PMI national manufacturing index is scheduled for Friday, along with the first revision to first quarter Gross Domestic Product (GDP). Consumer Confidence and Consumer Sentiment will round out the economic reports. Mortgage markets will be closed on Monday for Memorial Day.