Houston's Rate Sheet

Rate Watch

As discussed in my previous newsletter, there was not much activity on last week's economic calendar. However, investor anticipation of this week's Fed meeting made for a volatile week and mortgage rates made a big jump. According to Freddie Mac's weekly survey rates hit a 4-year high as the benchmark 30-year fixed-rate mortgage rose to a average of 6.71 percent, up from 6.63 percent the previous week. The 30 year fixed has not reached these heights since May 31, 2002. Other products followed. Rates on the 15-year fixed-rate mortgage increased to 6.36 percent, up from the previous week's 6.25 percent. Short term rates broke a streak as well. The one-year adjustable rate mortgage rose to 5.75 percent, up from the previous week's 5.66 percent and the highest level since one-year ARMs averaged 5.77 percent the week of Aug. 3, 2001.

This all brings us to this week's big event. At the conclusion of their meeting Thursday afternoon, the Fed’s Federal Open Markets Committee will have raised their key rate 25 basis points to 5.25%. This action is almost universally expected. Since Investors are still unsure about the prospects of future Fed hikes, the Fed's statement following the meeting will be closely scrutinized. The effect on mortgage rates will depend on the perceived prospect for future hikes and the perception of the Fed’s success in fighting the battle against inflation. All borrowers should lock rates as soon as possible. The lead up to the Fed meeting will probably cause rates to slowly move upward throughout the week.

While the Fed Meeting will overshadow most other events on the economic calendar, there are a couple additional events to watch. They may prove to have some impact on rates as well. Housing sector data on New and Existing Home Sales will come out on Monday and Tuesday. These two reports will give us some insight into the effects of higher rates. Additionally, the final revision to first quarter Gross Domestic Product, the broadest measure of economic activity, will be released on Thursday. On Tuesday and Wednesday, 2 year and 5 year Treasury auctions are on the schedule and investors will watch closely for demand from foreign investors. And finally Friday will bring the Personal Income report and the Chicago PMI manufacturing index. Again lock those rates, because this week will be a bumpy ride.

posted by Vincent Biondillo @ 3:34 PM