Houston's Rate Sheet

Rate Watch

They go up, and they go down. After slightly rising two weeks ago, mortgage rates quickly found themselves back down last week. In Freddie Mac’s weekly survey the 30-year fixed-rate mortgage (FRM) averaged 6.43 percent, down from the previous week when it averaged 6.47 percent. Rates on other popular products dropped as well. The 15-year FRM averaged 6.11 percent last week, down from the previous week’s 6.16 percent and one-year Treasury-indexed ARMs averaged 5.60 percent, down from 5.63 percent.

Taken on the whole, the past four weeks has seen very little volatility. This can be attributed to the lack of surprises on the economic front. Last week’s Consumer Price Index (CPI) matched the consensus forecast exactly. While the 2.8% annual rate of increase in “core” CPI, which excludes the volatile food and energy, was above the Fed’s comfort zone of 1.0% to 2.0%, these elevated levels had already been anticipated by investors. The response to the news was positive and the lack of bad news was enough to produce a small rally in mortgage markets on Friday.

The real impact from the Consumer Price Index is related to the Federal Reserve and more specifically this Wednesday’s FOMC meeting. Like CPI, economic releases over the past several weeks have given investors little reason to alter their expectations of the Fed’s monetary policy. Any change in the direction by the FOMC would come as a huge shock to investors. Some expect that there will be at least one more rate hike before the end of the year, but besides that the Fed is expected to stay pat. Hopefully, these prognostications will become reality and borrowers can expect little change in rates over the next few months.

Although investors believe that the chance of a rate hike on Wednesday is extremely slim, the statement that accompanies the announcement will be scrutinized thoroughly. It is the hope of many that the Fed will dispel the notion of another rate hike, and make overtures towards future rate cuts for the not too distant future.

Two big economic reports on Tuesday will make up the bulk of the data this week. Like last week’s CPI report, if the Producer Price Index mirrors market expectations, mortgage markets will continue to remain steady. PPI would probably have to miss by a wide margin to have much impact. Important housing market data will also be released that day in the Housing Starts report. The magnitude of the slowdown in that sector is a major issue for the health of the economy.

Borrowers should lock their rates prior to both the PPI and especially prior to the FOMC meeting on Wednesday. You don’t want to find yourself on the wrong side of a Fed meeting.

posted by Vincent Biondillo @ 9:24 PM