Rate Watch
Mortgage Rates move only slightly, as Fed meeting approaches
Last week, the mortgage markets were uncharacteristically calm. For the past several months, the markets have shown a high level of volatility. But with very little data to be disseminated, the markets moved fairly flat.
There were only a few reports of note. New Home Sales and Existing Home Sales were released. New Home Sales were a little worse than expected, and Existing Home Sales were inline with Wall Street expectations. The Durable Goods Orders report was worse than expected. Durable Goods Orders dropped .03% due to lower than expected numbers in the Transportation Industry. None of these reports had a significant impact on mortgage rates.
This morning, Bankrate.com's overnight average on the 30-year fixed rate mortgage came in at 5.87 percent, only slightly down from last Monday's 5.90 percent. The 15-year fixed rate mortgage was unchanged at 5.47 percent, and the 5-year Adjustable Rate mortgage moved up 1 basis point to 5.65 percent from last week's 5.64 percent.
Unlike last week, this week's economic calendar is packed full of economic data and activity. Most importantly, the Federal Reserve's Federal Open Market Committee (FOMC) will meet starting Tuesday. The meeting will culminate with an announcement regarding their future policy directions and any changes to their Federal Funds Rate. It is expected that the FOMC will cut their Federal Funds Rate 25 basis points. Even though, you might expect this announcement to have a positive impact on mortgage rates, it may have the opposite effect. Many mortgage bond investors are beginning to have real concerns about inflation. The falling dollar, high oil prices, and higher food costs are putting real stress on prices, and this price inflation can destroy the value of bonds. Many bond investors would be more welcome to either an increase in the Federal Funds Rate or a hiatus from additional cuts. Either of these moves would show bond investors that the Fed is serious about inflation fighting. It would also give them confidence that their bond investments are being protected.
Besides the all important Fed meeting, there will be 2 other reports that could have a significant impact. On Thursday, the Personal Consumption Expenditures (PCE) price index will be released. The PCE Index is the Federal Reserve's favorite inflation metric. This index measures the average increase in prices for all domestic personal consumption. If this report shows that inflation is moderating, it could be good news for bonds. If not, mortgage rates will likely go up.
If the Fed Meeting and the PCE price index were not enough, the Employment Report or as many call it "the biggest economic report of the month" is set to be released on Friday. The Employment Report measures how many people are looking for jobs, how many have them, what they're getting paid, and how many hours they are working. This report always has the ability to move markets and conventional wisdom in a big way. If job numbers are poor, then it could help the mortgage markets. If the job numbers are good, then the recession talk might begin to die down and investors might begin to take their money out of the mortgage markets and put it into the stock market, which would push mortgage rates higher.
In addition to the big reports mentioned, here are a few others to watch: 1st Quarter Gross Domestic Product, Institute for Supply Management (ISM) Manufacturing Index, and Consumer Confidence.
All-in-all it will be an interesting week. It is completely unclear at this time what will happen, but it will probably be a very volatile week. Borrowers should lock their rates at their earliest opportunity.
posted by Vincent Biondillo @ 2:03 PM
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