Houston's Rate Sheet

Rate Watch

Despite better than expected Employment numbers, Mortgage rates fall

Good news is not always good news. Last week’s Employment Report was better than expected, but Wall Street investors didn’t take the news very well. The economy lost 50,000 jobs in the month of July, which was well under the 75,000 expected on Wall Street. Most of the job loss came from declines in the construction and manufacturing sectors. As a result of the losses, the rate of unemployment rose to 5.7%, the highest level since January 2004. The stock market was not very happy with the news, and mortgage rates fell thanks to the bad feelings.

As of this morning, Bankrate.com’s overnight average on the 30-year fixed rate mortgage fell to 6.31 percent, down from last Monday’s 6.41 percent. Other programs followed. The 15-year fixed rate mortgage fell 12 basis points to 5.85 percent, and the 5-year Adjustable Rate Mortgage (ARM) fell to 5.83 percent, down from last week’s 5.92 percent.

This week’s big news will be the Federal Reserve’s FOMC meeting. It is fully expected that the Fed will keep their key interest rate unchanged. Oil prices have fallen over the past couple of weeks, so the concerns regarding future inflation have subsided a bit. The statement to follow the Fed’s decision will probably have some weight. Most investors believe the Fed will keep rates unchanged until much later in the year.

It is hard to predict where rates might go after the meeting. If investors are convinced by the Fed that inflation concerns are subsiding, then mortgage rates could fall. As of this morning, inflation concerns were a little higher due to the results of the Personal Consumption Expenditure (PCE) price index. The July PCE price index came in at .8%, which was higher than the .5% May number. It was not well received by the markets, but mortgage rates are under control at the moment. Borrowers should probably lock at their earliest opportunity. Mortgage markets will more than likely be very volatile after the meeting.

posted by Vincent Biondillo @ 2:07 PM