Rate Watch
Inflation is still in the air and mortgage investors don't like it. After a brief hiatus in rising rates, mortgage rates continued their upward trajectory. Freddie Mac reported in their weekly survey that rates on 30-year fixed-rate mortgages (FRM) averaged 6.63 percent, up very slightly from the previous week's 6.62 percent. Other programs followed. Rates on 15-year FRM increased to 6.25 percent, up from 6.23 percent the previous week and one-year adjustable rate mortgages rose to 5.66 percent, up from the previous week's 5.63 percent.
Last week, the two top inflation reports, the Consumer Price Index and the Producer Price Index, showed a higher than expected level of inflation. Wednesday’s closely watched Consumer Price index showed inflation rising at a 2.4% annual rate. The Fed typically likes to see prices rising no higher than 2%. The bad news led to rising rates through the rest of the week.
Of course, this means that we can more than likely expect an additional rate hike by the Federal Reserve next week. Additionally, the financial markets reflect a 50/50 chance that there will be a second rate hike before the end of 2006. Investors believe the Fed is willing to risk a slowdown in economic growth in order to control inflation, which is comforting from a bond investor standpoint. However, it does mean that interest rates will continue to rise slowly for the foreseeable future.
All of the big economic data to be released before next week's Fed meeting is in the public domain. However, there will be two notable economic releases this week. Housing Starts on Tuesday will provide insight on how the industry projects the damage of rising interest rates. Then on Friday, Durable Orders will be released, providing insight into the demand for big ticket items like 18-wheelers, boats, refrigerators, etc.
Despite the absence of any big economic releases, the markets are expected to be volatile in anticipation of the next Fed meeting. Borrowers should lock their rates at their earliest convenience.
posted by Vincent Biondillo @ 1:20 PM
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