Rate Watch
Mortgage rates hold tight, after rough week prior
Not much movement in mortgage rates last week. Since rates had moved an astonishing 33 basis points in the week prior, it was a welcome event. Although flat on the week, mortgage rates were quite volatile during the week. Economic reports gave mixed signals regarding the direction of economic growth. On Thursday,
Existing Homes Sales were lower than expected, but Friday’s
New Home Sales reported higher than expected numbers. Friday’s
Durable Goods Orders came in higher than expected as well. Oil Prices moved down on the week, which helped relieve some fears regarding inflation. All-in-All investors seemed to not have any greater sense of the economy’s state than it did at the beginning of the week, and mortgage rates reflected it.
This morning, Bankrate.com’s
overnight average on the 30-year fixed rate mortgage came in at 6.41 percent, down 1 basis point from last Monday’s report. Other products moved slightly more. The 15-year fixed rate mortgage moved up 3 basis points to 5.97 percent. The 5-year Adjustable Rate mortgage rose to 5.92 percent, up from last week’s 5.85 percent.
With the release of July’s
Employment Report, this week will most surely be more interesting than last week. As we have stated many times before, the Employment Report is considered to be the most important economic report of the month. In it, we discover how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. The answers to these questions help investors gauge the future direction of the economy.
Also, this week, the first reading of 2nd Quarter
Gross Domestic Product (GDP) will be released. Of all the reports, GDP represents the broadest reading of economic activity. Due to its size, it usually takes the government a little time to get everything correct, so this will be the 1st of 3 releases of these numbers. The 1st release usually has the most impact. Wall Street estimates that the economy grew 2.4 percent in the 2nd quarter.
Mortgage rates could move in either direction. Investor sentiment could move drastically based on the results of the Employment and GDP numbers. Borrowers should remain diligent and lock in interest rates at their earliest opportunity.
Rate Watch
Mortgage rates rise to highest levels of the year
This time last week, things weren’t looking to bad for borrowers. Mortgage rates had been down for 3 out of the last 4 weeks. Although the economy looked to be floundering, it was a great time to lock in rates. Oh, what a difference a week makes? Mortgage rates have now moved to their highest level in 3 years. It was the largest 1 week increase we have seen all year. According to Bankrate.com’s overnight average, the 30-year fixed rate mortgage moved from last week’s average of 6.09 percent to an astonishing 6.42 percent. Other popular products did not fair any better. The 15-year fixed rate mortgage rose to 5.94 percent, up from 5.63 percent, and the 5-year Adjustable Rate mortgage rose to 5.85 percent, up from 5.51 percent.
Although, the initial problems caused by Fannie Mae and Freddie Mac had helped mortgage rates, the pressure from inflation was too much for investors to ignore. Both the Producer Price Index (PPI) and the Consumer Price Index (CPI) posted big inflation numbers. PPI posted the highest inflation number since 1981 at 1.8%, and CPI reported inflation at 1.1 percent, up from .6%. These big numbers caused many pundits on Wall Street to increase their calls for the Fed to raise interest rates.
Besides inflation, it appears that the economy is not doing as poorly as thought. Even though Fannie Mae and Freddie Mac are a problem, other financial institutions outperformed expectations last week. Wells Fargo, Chase, and other posted better than expected performance in the 2nd quarter. Also, the Retail Sales report came in better than expected.
This week the volatility is expected to continue. Although there is little economic data to help allay inflation fears, the stock market could help push mortgage rates back down. If the stock market falters, it could ignite a flight to quality, which will no doubt benefit mortgage rates. Also, oil prices fell off a little last week, if this becomes a trend, then inflation fears might subside. If neither of these events happen, mortgage rates may continue to increase.
Rate Watch
Mortgage rates fall, as Fannie and Freddie’s future becomes gloomyLast week, the big question for Mortgage rates was the big question for the whole global economy. What’s going on with Fannie Mae and Freddie Mac? Rumors swirled regarding the health of these two mortgage market behemoths, and they appear to be on life support. Fannie and Freddie Mac collateralize and guarantee over $5 trillion in mortgage debt. The prospects of their failure left a lot of uncertainty in the market. If these two companies fail, mortgage financing would slow to a crawl. Together, these two entities represent 40% of the residential mortgage market.
Last night, the Federal Reserve and the Treasury Department released a plan to prop up the struggling
GSEs. First, the Treasury department will grant the two entities a temporary increase in their lines of credit with the US Treasury. Second, the plan will give the Treasury temporary authority to purchase stock in the two companies, if need. And lastly, the plan will allow the Federal Reserve to lend to the GSEs should they require it. As of the writing of this newsletter, the stock market has not reacted favorably to the plan.
Since the Fannie Mae and Freddie Mac fears came into focus, the stock market has taken a beating and new predictions of recession have entered economic outlooks. This has really helped to push mortgage rates lower. Bankrate.com’s
overnight average on the 30-year fixed rate mortgage has fallen to 6.09%, down from last Monday’s 6.26%. Other products have followed. The 15-year fixed rate mortgage fell to 5.63%, and the average on the 5-year Adjustable Rate mortgage dropped to 5.51%, down from last week’s 5.78%.
This week’s economic calendar is stock full of data and economic events. On Tuesday, Fed Chairman Ben Bernanke will begin a two day testimony to the Senate Banking Committee. The Fed Chairman can expect to be grilled on the problems with Fannie and Freddie and his words may have some impact on the markets. On Tuesday and Wednesday, two big inflation reports will be released, the
Producer Price Index (PPI) and the
Consumer Price Index (CPI). PPI measures wholesale inflation, while CPI concentrates on inflation in consumer goods. Inflation has been a big area of concern for a number of weeks.
It will also be important to watch Tuesday’s
Retail Sales report, Wednesday’s
Industrial Production report, and Thursday’s
Housing Starts report. All of these reports could have an impact on mortgage rates.
Rate Watch
Employment Numbers as expected, Mortgage rates move slightly higherAlthough a short week, last week’s economic calendar was action packed. The
Employment Report is always enough to keep investors on their toes. The report for June showed continued economic contraction. However, the contraction was mild and inline with expectations. The economy lost 62,000 jobs in the month of June, and the unemployment rate held steady at 5.5%. Wage inflation appears to be under control. The Average Hourly Wage increased only .3%, which was inline with the Wall Street consensus.
This morning, Bankrate.com’s
overnight average on the 30-year fixed rate mortgage came in at 6.26%, up only 3 basis points from last Monday’s 6.23%. Shorter-term rates faired much better than the 30-year fixed. The 15-year fixed rate mortgage fell 1 basis point to 5.78%. The 5-year Adjustable Rate Mortgage averaged 5.58%, down from last week’s 5.79%.
This week’s economic calendar will be much less busy than last week’s. Most investors will be watching closely as Federal Reserve and Treasury Officials enlighten us with words. On Tuesday, Fed Chairman Ben Bernanke, Fed Governor Jeffrey Lacker, and Treasury Secretary Henry Paulson will all be giving speeches on the economic outlook and policy. On Thursday, Chairman Bernanke and Secretary Paulson will testify to the House Financial Services Committee. Investors will be looking for clues on the future direction of the Fed and Treasury’s policies regarding interest rates and the US dollar. The weakness of the dollar has contributed to growing inflation and high oil prices.
With little data on the horizon, it is difficult to predict where mortgage markets will go. It is important for borrowers to be vigilante when deciding when to lock in their mortgage rate.
