Rate Watch
Mortgage rates rose slightly last week, but all-in-all it was pretty tame. Freddie Mac reported in their
weekly survey that rates on the 30-year fixed-rate mortgage averaged 6.62 percent, up from the previous week’s 6.60 percent. The 15-year fixed-rate mortgage followed and rose to 6.23 percent, up from 6.20 percent the previous week. This was the 8th time in the past 9 weeks that the survey reported rising rates.
Short-term products moved in the opposite direction. Rates on one-year adjustable rate mortgages averaged 5.61 percent, down slightly from the previous week's 5.62 percent.
Last week's
GDP revision had the biggest effect on mortgage rates. GDP was revised higher to a 5.3% growth rate for the first quarter of 2006. Although, this revision was slightly lower than expected, there is concern that economy might have grown to fast. If the economy does overheat, it could lead to higher inflation. However, economic growth is expected to slow slightly, which could lead the Fed to halt their rate hiking bonanza. For this reason we did not see mortgage rates rise too much on the week.
Even though it is a short one, this week should be fairly exciting. Tomorrow the Fed will release their
minutes from the previous FOMC meeting. The minutes are a detailed transcription of the discussion during the last Fed meeting and they will be eagerly scrutinized for clues about future policy. On Wednesday and Thursday, the two big national manufacturing indexes, the
ISM and the
NAPM-Chicago, are on the schedule. These reports will give us insight into the health of the Manufacturing sector. And last but not least on Friday, the biggest economic data of the month will be revealed:
The Employment Report. The health of the labor market is perhaps the single biggest factor in the performance of the economy. Early estimates are for about 175,000 new jobs. If borrowers are able, they should definitely lock rates prior to the release of this report. The Employment report can cause big swings in the mortgage rate market, and nobody wants to be on the wrong side of it.
GDP revision pushes rates down
The
GDP revision came in higher than the initial estimate released earlier in the month, however the revision was slightly lower than the market consensus. GDP is the most broad measure of economic activity, and it takes a few revision to get it right. In response to the news, Treasury prices rose slightly which forced yields to fall slightly. That's good news for mortgage rates, and let's hope this minor slide continues to become a bigger slide.
Here's a little detail on that story for
MarketWatch.com.
Treasury prices rose slightly early Thursday, putting yields under minor pressure, after first-quarter gross domestic product was revised upward, but by a less-than-expected amount. The Commerce Department reported that GDP in the first quarter rose 5.3%. The result exceeded an initial estimate of 4.8%, but fell short of 5.6%, the consensus level of economists polled by MarketWatch. Separately, initial jobless claims in the most recent week dropped by 40,000 to 329,000. The weaker-than-expected GDP reading stirred safe-haven interest in bonds and also fueled hopes that the Federal Reserve will be able to back off its rate tightening program sooner rather than later. The benchmark 10-year Treasury note last was up 2/32 at 100-22/32 with a yield.
On the week, mortgage rates have been on the decine. For the first time in 8 weeks, Bankrate.com's
weekly survey of large lenders has resulted in a 6.69 percent interest rate on the 30-year fixed rate mortgage. The decline was a 6 basis point drop from the previous week. Rates have been driven down by overreaction to last week's Consumer Price index and a weak Durable Good Orders report.
Rate Watch
Thanks to a higher than expected
Consumer Price Index, and increasing fears over inflation. Fannie Mae's
weekly average reversed course and rose to the highest levels in nearly four years. The benchmark 30-year fixed rate mortgage averaged 6.60 percent, up from the previous week's 6.58 percent. That was the highest rate recorded since June 20, 2002, when 30-year mortgages stood at 6.63 percent. Rates on 15-year fixed-rate mortgages followed and rose to 6.20 percent, up from the previous week's 6.17 percent. However, rates for one-year adjustable rate mortgages averaged 5.62 percent and remained unchanged from the previous week.
In the previous 3 meetings of the Fed's
FOMC board, the Fed has stated that near-term economic data will determine the need to raise rates in the future. So it is no surprise that bond investors were swayed very easily by economic reports last week. On Tuesday, a rally took place on Tuesday when the core
Producer Price Index (PPI), which removes food and energy, rose less than expected in April, for an annual rate of 1.5%. However, the market made a U-turn on Wednesday, when the core rate of the Consumer Price Index (CPI) showed a higher than expected 2.3% annual inflation rate. Since, CPI is given much more weight than PPI, it is speculated that another Fed rate hike is far more likely than it was at the beginning of last week. And although a Fed hike does not directly push mortgage rates higher, they do tend follow similar trajectories.
Wall Street’s focus will move to economic performance this week. The economic calendar will be pretty light until Wednesday with the release of
Durable Goods Orders, which provides insight into the demand for items with an expected lifespan of longer than three years such as cars and heavy appliances. Thursday, the first revision to
Gross Domestic Product will be released. GDP is the broadest measure of US economic activity, and it requires two revisions over two months to incorporate all the data. On Friday, a report of
Personal Income will be released. This report will reveal the spending power of consumers, which make up two-thirds of the economy. Reports on
New and
Existing Home Sales also will be released late in the week, so we’ll be able to see if there has been any impact from higher mortgage rates.
Borrowers should lock their rates as soon as possible. The markets are very volatile at the moment, and they could continue to rise on the week. 84% of
Bankrate.com’s experts believe rates will continue to go up.
CPI is higher than expected
After yesterday’s relatively flat Producer Price Index, bond prices moved higher and bond yields fell. All that went away, after today’s release of the Consumer Price Index. CPI is the most popular of inflation metrics, and it came in a little higher than expected. In response, bonds gave up their gains and fell in price, which led to higher yields. For the week, it appears to be a wash for mortgage rates, but it probably means that the Fed will raise rates again and cause rates to continue their rise.
Here's a Reuter's
article with more detail about today's events:
U.S. Treasury prices reversed a two-day advance on Wednesday after sharper-than-expected increases in April consumer prices made further Federal Reserve interest-rate hikes look more likely.
A 0.3 percent increase in the core Consumer Price Index in April alarmed inflation-conscious bond investors who were soothed just a day earlier by a more benign than expected 0.1 percent increase in the core Producer Price Index.
"Investors have a high sensitivity to signs of inflation now, so bonds moved lower on this number because it argues that the Fed could keep raising interest rates," said A.G. Edwards and Sons senior economist Patrick Fearon.
"The core number for CPI had been stuck on 2 percent year-over-year for nearly a year, but is now at 2.3 percent year-over-year," said Gregory Miller, chief economist at SunTrust Banks in Atlanta, Georgia. "We've now had three core CPI readings in a row which are above a previously almost flat trend and the market is finally starting to notice that."
Miller said the uptick in inflation would complicate the job of Fed monetary policy-makers.
"The Fed has already acknowledged that the growth side of the economy is showing some chinks in its armor," Miller said. "There is some early impact on household budgets from the need to spend more on energy and less on other consumption."
"That puts the Fed in the position of having to balance (addressing) a slowdown that's already started with the prospect of prices coming up as well," Miller said.
In late trade, fed funds futures markets reflected a 50 percent chance that Fed policy-makers would boost rates again when they meet in late June, up from 38 percent on Tuesday.
The Fed raised its benchmark fed funds rate to 5 percent earlier this month, its 16th rate hike in nearly two years.
"If the (inflation) news continues to be bad, the Fed will have to get back on the tightening bandwagon after the June meeting," said Craig Coats, co-head of fixed income at Keefe, Bruyette & Woods in New York.
Many analysts believe the Fed will refrain from raising rates in June, pausing instead to see what impact nearly two years of monetary tightening will have on economic growth.
At 3 p.m. (1900 GMT) benchmark 10-year U.S. Treasury notes were down 16/32 in price, their yields rising to 5.17 percent from 5.10 percent late Tuesday.
Two-year Treasury notes slipped 1/32, their yields rising to 4.97 percent from 4.95 percent late Tuesday.
The 30-year bond lost nearly a full point, its yield rising to 5.28 percent from 5.21 percent on Tuesday.
The year-over-year core inflation rate of 2.3 percent as of April was above the Fed's perceived "comfort" zone of between 1 percent and 2 percent, analysts said.
Tuesday's rise in Treasury debt prices was fueled in part by data showing a 7.4 percent April decline in housing starts. The government report supported the view that the key economic sector would slow overall growth and force the Fed to stop raising interest rates.
However, a mortgage industry survey released on Wednesday showed there is still life in the housing market.
The Mortgage Bankers Association's index climbed last week despite rates on fixed-rate mortgages approaching 4-year highs. The group's weekly gauge of mortgage activity was up 4.6 percent from the previous week.
Rate Watch
Last week, the Fed
raised rates for the 16th straight meeting, but it had little impact on Freddie Mac's
weekly survey. For the first time in 6 weeks, the average on the benchmark 30-year fixed rate mortgage came in slightly lower than the previous week. The popular program averaged 6.58 percent, down from 6.59 percent, which had been the highest level in nearly four years. Other popular products followed. Rates on 15-year fixed-rate mortgages dropped to 6.17 percent, from 6.22 percent the previous week. One-year adjustable rate mortgages dipped to 5.62 percent this week, down from the previous week's 5.67 percent.
Due to the timing of their release, this week's Freddie Mac survey may not be the best indicator of last week's activity. After the Fed meeting, bonds and mortgage rates rose steadily throughout the week. Fannie Mae's
average on 30-year fixed rates rose 0.02% last week, and 10-year
Treasury yields rose to 5.18% from 5.12%.
As always, the Fed's post meeting
comments were followed very closely. And although there was a slight change in verbiage, nothing in the statement was much different from the comments following the previous 2 hikes. The Fed will continue to take their decision making one meeting at a time, and base it strictly on near-term economic data.
This week's
economic calendar will have a big impact on the possibility for a future Fed rate hike on June 28th. Fed's most important job is to offset inflation, and their most popular tools for tracking inflation are the
Producer Price Index (PPI) which will be released on Tuesday and the
Consumer Price Index (CPI) which will be released on Wednesday. PPI focuses on the increase in prices of “intermediate” goods used by companies to produce finished products, while CPI looks at those finished goods which are sold to consumers. In almost all instances, if these two reports show higher than expected results, then mortgage rates will rise accordingly. If they show lower than expected results, then mortgage rates will fall accordingly. It is not a good idea to allow rates to float through the release of these reports. If a borrower is in a position to lock their rate prior to their release, then they should lock'em up.
Beyond CPI and PPI, their will be two major economic reports this week. First,
Industrial Production will be released on Tuesday. The index of industrial production measures the physical output of the nation's factories, mines and utilities. And on Thursday, we will see if the help of our industry is still going strong with the release of the
Housing Starts report.
Links of the Week
HoustonNationwide
Rate Watch
For the sixth straight week, Freddie Mac's
weekly survey resulted in higher mortgage rates. The benchmark 30-year fixed rate mortgage (FRM) increased modestly from the previous week's 6.58 percent to 6.59 percent. The average for the 15-year FRM rose slightly as well. The popular product came in at 6.22 percent, up from the previous week's average of 6.21 percent. Alternatively, short-term rates were down. One-year Treasury-indexed ARMs averaged 5.67 percent last week, down very slightly from last week when it averaged 5.68 percent.
Despite minor changes in the Freddie Mac survey, there were a couple of big stories last week that concerned investors. In the first part of the week, Fed Chief Ben Bernanke was the topic of conversation. As you may remember, two weeks ago, in front of Congress, Bernanke made the comment that the Fed might consider taking a hiatus from its rate hiking spree. This was taken by the market to mean that the Fed might be finished with their monetary tightening campaign. Apparently, Bernanke did not mean that at all. In response to the media interpretation, he told a CNBC reporter that investors and the media had misunderstood his message. In response to Bernanke’s clarification, the markets and mortgage rates gave back the gains the comments had provided.
Another important story came with Friday’s
Employment report. The Employment report is one of the more important measures of economic health, and it is followed very closely. This particular release was no different. Wall Street predicted job growth at 200K, but the US added just 138K new jobs in April. Additionally, there was a small downward revision to the March figures as well. In many cases, a drop-off in job growth would result in falling mortgage rates. However, the report also showed an increase in Average Hourly Earnings (or wages). Since, presents signs of inflation, rates ended up rising as a result of the report.
There is nothing of import on the
Economic Calendar until the
Fed meeting on Wednesday. Wall Street is fairly certain that the Fed will raise rates another 25 basis points to 5.00%. As always, the Fed’s statement will be carefully analyzed for clues about future policy. If borrowers can lock their rates before Wednesday, it is highly recommended. It is never wise to needlessly float rates through a Fed meeting.
Thursday and Friday will be busy days as well.
Retail Sales will come out Thursday morning, and this can have a pretty big impact on the markets. Consumers make up 70% of economic activity. That same day, there will be an
auction of 10-year Treasuries. Bond investors will closely monitor the level of buying from foreigners. Foreign demand for bonds has kept them low for the past several years. Both
Trade Balance and
Consumer Sentiment typically have little impact on the markets, but they will be worth watching on Friday.
