Houston's Rate Sheet

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.

posted by Vincent Biondillo @ 3:50 PM