Houston's Rate Sheet

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.

posted by Vincent Biondillo @ 9:15 AM