Houston's Rate Sheet

Rate Watch

Despite a rocky week, Mortgage Rates fall

From the Fed announcement to the Employment Report, mortgage bond investors had plenty of information and data to dissect. The fun started on Wednesday with the announcement from the Federal Reserve regarding a 25 basis point cut in the Federal Funds Rate. Although the 25 basis point cut was expected, the statement that followed was not expected. The Federal Reserve stated that they will continue to provide liquidity as needed and the board has no more concern regarding inflation than they had in March. Investors expected the Fed to take a tougher stand on inflation. This news provided a bounce to the stock market and mortgage rates moved higher as investors fled to find new stock market gains.

On Thursday, the Fed's favorite inflation report, the Personal Consumption Expenditure (PCE) Index, was released. Inflation was only slightly higher than the Federal Reserve's target. This gave some credence to the Fed's statement. Although inflation appears high, it does appear that it has leveled off a bit. Mortgage rates began to fall on the news.

Finally, on Friday, the Employment Report was released. As always, this report on the US Employment situation is the most widely followed economic report of the month. It can really change investor confidence. According to the report, the US economy lost 20,000 jobs in the month of April. However, the loss was not as significant as expected. Investors expected the economy to loose 70,000 jobs. So although the news was negative, it was taken as a positive development. This report coupled with Gross Domestic Product (GDP) numbers, which showed positive growth in the 1st quarter, caused many to question all the recession talk. Mortgage rates immediately moved up on the news. However before the close on Friday, rates had fallen back down to pre-Friday levels.

This morning, Bankrate.com's overnight average on the 30-year fixed rate mortgage fell to 5.77 percent, down from last week's 5.87 percent. Other mortgage products followed. The 15-year fixed rate mortgage fell to 5.35 percent, down from 5.47 percent. And the 5-year Adjustable Rate mortgage fell 5.39 percent, down from last Monday's 5.65 percent.

This week will be fairly slow on the economic data front. Stock market performance will take on a greater importance. If the stock market makes gains, investors may begin to take their money out of the bond markets and put their money into stocks. If not, rates may begin to fall. Borrowers should keep a close eye on the stock market.

posted by Vincent Biondillo @ 4:34 PM