Rate Watch
Despite, a light economic calendar, rates continued to climb pretty steadily last week. The benchmark 30-year fixed rate mortgage in Freddie Mac's weekly survey reported a 6 basis point increase from the previous week's survey. The popular program's average came in at 6.49 percent. This average is the highest that Freddie has reported since July 12, 2002. Other programs followed. The average for the 15-year FRM was 6.14 percent, up from the previous week's average of 6.10 percent, and one-year Treasury-indexed ARMs averaged 5.61 percent this week, up from the previous week when it averaged 5.57 percent.
This week's rise in rates were attributed to two things. First, the Employment report issued the previous week continued to concern the markets. As you may remember, the Employment report showed a lower than expected Unemployment rate. As the economy moves closer and closer to full employment, there is the fear that it could force wages higher (i.e. inflation). Second, thanks to saber rattling in Iran, nationalization of oil in Venezuela, and the possibility of civil war in Nigeria, the price of oil continues to sky rocket. Today a barrel of oil will cost you 70 bucks, and many analysts are predicting that it could go as high as $80/barrel. Even though that's good news for the Houston economy, $80/barrel oil would have ramifications throughout the economy. It could lead to higher prices for goods and services (i.e. inflation). Almost without exception inflation leads to higher rates, and these two dynamics could stem inflation fears for a while.
Hopefully, the economic calendar will allow some of the inflation fears to be allayed. This is a big week because the Producer Price Index and the Consumer Price Index will be released on Tuesday and Wednesday respectively. PPI and CPI are the most widely watched indicators of inflation. PPI focuses on the increase in prices of intermediary goods used by companies to produce finished products, while the CPI looks at those finished goods which are sold to consumers. If these two reports show a lower than expected inflation results, then we could see rates fall. However, I would not suggest that anyone bet on that result. If you can lock your rates prior to the PPI and CPI releases, then you definitely should.
Beyond the inflation data, Housing Starts data will be released on Tuesday. This will give us some perspective on how rates are affecting the real estate market. Also on Tuesday, the minutes from the March 28 FOMC meeting will be released. This detailed description of the discussion during the last Fed meeting will be scrutinized for clues about future policy. Many investors believe the rate hike jamboree that has occurred in 15 consecutive meetings is coming to a close and they will be eagerly looking for proof.
posted by Vincent Biondillo @ 9:52 AM
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