For mortgage rate shoppers in Sacramento and California, markets have touched new all-time lows, but are not sticking. This is due to traders taking advantage of buying on dips and selling on rallies.

It can also be argued, that banks are squeezing their pipelines by keeping rates higher, as they actively manage this mini refinance boom we are experiencing – for those homeowners who are underwater and want to take advantage of the much-needed HARP prograrm.

As we have seen most of this year, political and economic action within the Eurozone dictated the direction of domestic mortgage rates. Last week’s 2-day EU Summit was the major driver of markets.

In the days leading up to the summit, mortgage rates got worse as optimism in the summit’s outcome grew. This is because a stable Europe is good for the world’s economy which, in turn, encourages Wall Street investors to move money from “safe investments” such as U.S. mortgage bonds into more risky ones such as equities.

This creates an excess supply of mortgage bonds which causes mortgage rates to move higher.

On the day prior to the summit, though, optimism faded. Several Eurozone leaders expressed an unwillingness to compromise with each other and the rhetoric drove investors back into “safe” asset classes, which explains the mid-week drop in mortgage rates.

However, Friday, in a surprise move, EU officials announced a plan to recapitalize Europe’s banks, and to reduce borrowing costs for Spain and Italy. Once again, this puts investors in a risk-taking mood, and mortgage rates rose in response.

The news in Europe overshadowed strong housing reports here in the United States.

New Home Sales and the Pending Home Sales Index both gave strong results and inflationary pressures were shown to be in check. The housing market continues its slow, steady recovery.

This week, mortgage rates have continued to stay volatile. The markets have had the weekend to pick through the EU agreement and, later this week, the Bureau of Labor Statistics will release the June 2012 Non-Farm Payrolls report. In addition, this is a holiday week so trading volume is expected to be lighter-than-usual (which could mean bigger swings in either direction). Also, Friday’s June employment report is generally expected to be a weak one – if so, rates should stay where they are.

Mortgage markets will be closed Wednesday for the 4th of July. Have fun and safe holiday!