Houston's Rate Sheet

Rate Watch

By Wednesday morning of last week, it looked like much of the decline in mortgage rates from the previous week would all but disappear. However, when it was all said and done, the week was a good one for borrowers.

Tuesday and Wednesday the two primary monthly inflation reports, the Producer Price Index (PPI) and the Consumer Price Index (CPI), were released and they both revealed higher than expected levels. The data showed that core PPI rose at a 1.9% annual rate and core CPI climbed at a 2.6% annual rate. The Fed is generally uncomfortable with core inflation levels above 2.0% and these results served to push mortgage rates up. As a result, Freddie Mac’s benchmark 30-year fixed-rate mortgage (FRM) averaged 6.80 percent, up from the previous week's average of 6.74 percent. Other products followed. The average for the 15-year FRM came in at 6.41 percent, up from 6.37 percent. One-year Treasury-indexed ARMs averaged 5.80 percent, up from the previous week when it averaged 5.75 percent.

However, this was not the complete story of last week’s events. On Wednesday, a couple of hours after the CPI report came out; the text from Fed Chairman Bernanke’s Congressional testimony was released. Bernanke did not provide us with any shocking information; however one was left with the impression that the Fed could be done raising rates fairly soon. If economic growth slows later this year as the Fed anticipates, Bernanke suggested that it may relieve some inflationary pressures. He also assured listeners that Fed officials are “very aware” of the risks to the economy entailed in raising rates too high. The testimony immediately had an impact, and mortgage rates started a slide for the remainder of the week. By Friday, Fannie Mae reported that average 30-year fixed rates decreased by 0.07% for the week.

Investors will closely watch developments to see if the conflict has the potential to spread to other countries. The most important economic data on the economic calendar will be the Friday release of second quarter Gross Domestic Product (GDP). GDP is the broadest measure of economic activity, and the data is revised twice as additional information becomes available. A substantial slowdown from the first quarter is expected. Since, this data doesn’t come out until late in the week, investors will be very interested into developments in the Lebanese/Israeli conflict. With the conflict having the potential of having the most impact this week, it would be wise to be cautious in considering when to lock your rate. Even though rates have slowly declined over the past two weeks, this trend is not set in stone. The markets are still volatile. I would advice borrowers to lock at their earliest convenience.

posted by Vincent Biondillo @ 1:20 PM