Overview: Increased concerns about the future political direction of the new Italian government were once again a positive influence on mortgage rates over the past week. A setback with North Korea also helped rates move lower, and they ended the week substantially below the seven-year highs seen earlier this month.

Italy formed a new coalition government last week, and its proposed policies have caused investors to wonder if Italy’s budget deficit will increase and whether there eventually will be a referendum on exiting the European Union (EU). On Friday, President Trump canceled the historic U.S. summit with North Korea that had been planned for June 12. Since then, there has been speculation that this was simply a temporary delay and that the summit may take place at some point, but the outcome is still up in the air. The uncertainty about the future course of Italy and relations with North Korea caused investors to shift to safer assets, including U.S. mortgage-backed securities (MBS). This additional demand for MBS helped push mortgage rates lower.

In April, sales of previously owned homes fell a bit from March, but they were at roughly the same level as a year ago at this time. The inventory of previously owned homes was at just a 4-month supply, 6% lower than a year ago. A 6-month supply is considered a healthy balance between buyers and sellers. The median home price was up 5% from a year ago. Week Ahead

Looking ahead, the core Personal Consumption Expenditures (PCE) Price Index, the inflation indicator favored by the Federal Reserve, will come out on Thursday. The figures on wage inflation, the number of jobs, and the unemployment rate, the most highly anticipated economic data of the month, will be released Friday in the monthly Employment Report. The Institute for Supply Management (ISM) Manufacturing Index also will come out on Friday, while the ISM Services Index will be released on June 5.