Houston's Rate Sheet

Rate Watch

Last week, the market's continued to react to Fed Chairman Ben Bernanke's congressional testimony from the previous week. New economic data served to validate much of what the chairman had predicted. As a result, Freddie Mac’s weekly survey continued to show falling mortgage rates. The benchmark 30-year fixed-rate mortgage (FRM) averaged 6.72 percent for the week, down from previous week's average of 6.80 percent. Other products continued to fall as well. The average for the 15-year FRM fell to 6.34 percent, down from the previous week’s 6.41 percent and one-year Treasury-indexed ARMs averaged 5.78 percent, down from 5.80 percent.

All and all it was a good new for borrowers and mortgage investors. A nice summary of domestic activity emerged on Wednesday when the Fed released its Beige Book, outlining current conditions in each of the Fed districts. The report showed a slowing pace of economic growth, a cooling off in the residential real estate market, and "modest" increases in wages and prices. This report proved to be confirmation for Bernanke’s prediction of slowing economic growth and moderate inflation. Both dynamics could prove to move rates one way or the other.

The biggest economic news of the week came on Friday, when the second quarter GDP was released. The economy was expected to have increased 3.0%, but the actual results showed growth of only 2.5%. Even more importantly for mortgage and bond investors what the GDP report had to say about inflation. Employment costs were almost entirely offset by productivity gains, in other words, workers are making more money, but they are completing more work as well. All of this served as further evidence that the Fed might be finished with their rate hiking spree.

Besides the ISM indexes to be released on Tuesday and Thursday, the economic calendar will be pretty uneventful until Friday when the July Employment Report is released. As usual, this data on the number of new jobs created and the Unemployment Rate will be the most influential economic data of the month. The health of the labor market is perhaps the single biggest factor in the performance of the economy. Leading up to the Employment report, the week might be dictated by the current conflict in the Middle East and a couple of Fed speeches to be given on Monday. Both of which could swing rates one way or the other.

Although, the current climate of falling rates has alleviated some pressure to lock rates, the market is still in a state of flux until the Fed’s FOMC meeting. I still believe it is a good idea to lock rates at their earliest opportunity.

posted by Vincent Biondillo @ 10:43 AM