Houston's Rate Sheet

Rate Watch

For the second straight week, the results of Freddie Mac's weekly survey resulted in a lower average interest rate. The benchmark 30-year fixed rate mortgage is averaging 6.32%, down from the previous week's 6.34%. The average for the 15-year fixed rate mortgage was also down, settling in at 5.97%. The popular program was down slightly from last week’s average of 5.98%. In contrast, short term programs were up. The One-year Treasury-indexed ARMs averaged 5.41% this week, up from last week when it averaged 5.37%.

On average, I would say last week was rather unremarkable. The market moved slightly up or slightly down depending on the news, but no long term trend emerged. The February Producer Price Index came in much lower than expected at -1.4%, versus a consensus of -0.2%. However, the more closely watched "core" PPI, which excludes more volatile energy and food costs, rose 0.3%, more than the forecasted gain of 0.2%. Overall, the report proved to be a neutral event.

Housing sales were also a mixed bag. On the one hand, Existing Home Sales increased 5% to 6.91 million annual units, far exceeding the consensus estimate of 6.50 million. On the other hand, New Home Sales were much lower than expected at 1.08 million compared to a consensus of 1.21 million. Since a slow down in the real estate market would make it less likely that the Fed would need to continue to raise rates, mortgage rates moved slightly down on the new home sales news.

Despite these mixed economic indicators, there seems to be a growing consensus that inflation is under control. If the Fed is in agreement with this consensus, then we could see some evidence this week. The Federal Open Market Committee (FOMC) meets on Tuesday to discuss the economy and the prospects for future rate hikes. Another 25 basis point hike is considered a sure bet, but the statement following the meeting will be the main driver of the market. As the end to the rate hikes approaches, the wording of the statement becomes more critical. If the statement indicates that the Fed believes the inflation is coming under control, you can bet on falling interest rates. If not, rates will be on there way back up.

Beyond the FOMC meeting, the economic calendar will be a broad range of events, but no other report will have the impact. The final revisions to 4th quarter 2005 GDP will be released on Thursday. GDP is the most comprehensive measure of economic activity, but by the time we get around to its third release the impact is less significant. The Chicago PMI national manufacturing index and Personal Income, two solid mid-level reports, will both come out on Friday. We also will be taking a look at consumer feelings. Reports on Consumer Confidence and Consumer Sentiment are also on the schedule next week.

Once again, all things will pale in comparison to the FOMC meeting. The Fed’s post meeting announcement will have a big impact on where rates go this week. It is not wise for borrower’s to float rates through an FOMC meeting. If borrower’s can lock rates today, they should.

posted by Vincent Biondillo @ 8:36 AM