Houston's Rate Sheet

Rate Watch

Mortgage rates fell last week, as Fed holds rates steady

After a string of consecutive rate cuts, the Federal Reserve decided to hold rates steady last week. Many investors did not take too kindly to the news, and money fled the stock market for the relative safety of the bond markets. The bond markets got another boost on Friday, when the Personal Consumption Expenditure (PCE) Index came in less than expected. Although, overall inflation heated up to .4% in the month of July, the Core PCE Index, which excludes highly volatile energy and food costs, came in at only .1%.

Since mortgages are backed by bonds, mortgage rates were one of the beneficiaries of the “flight to quality”. According to Bankrate.com’s overnight average, the 30-year fixed rate mortgage fell to 6.23%, down from last week’s 6.27%. Other products followed. The 15-year fixed rate mortgage fell to 5.79%, down from 5.86%. And the 5-year adjustable rate mortgage fell to 5.63%, down from last Monday’s 5.71%.

Although this week will be short due to Forth of July, there is some big economic news on the calendar. On Thursday, the all important Employment Report is scheduled to be released. The Employment Report is regarded by many as the most important report of the month. It 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 can completely change the market’s attitude and focus.

This month, Investors will be looking very closely for the presence of substantial wage inflation and further expansion of the unemployment rate. If either happens, it is difficult to predict the markets reaction. Due to the dual headaches of increasing inflation and declining growth, the market is not acting like itself. Borrowers should be extra cautious. They should move to lock interest rate before the Employment reports release.

posted by Vincent Biondillo @ 2:44 PM