Houston's Rate Sheet

Rate Sheet

Mortgage rates fall on falling inflation fears

For the past couple of weeks, there has been a significant change in attitude regarding inflation. Commodity prices across the board from Oil to Corn to Natural Gas have been in decline. Since, these rising commodity prices have contributed significantly to higher prices for all goods, there decline is a welcome development.

Last week, this change in attitude was apparent with the release of the Personal Consumption Expenditure (PCE) Index. The PCE Index is the Federal Reserve’s most watched inflation metric, and the market follows its movement very carefully. Last week, the PCE Index showed that inflation remained quite hot in the month of July at .6 percent. Since, the Fed is typically targets inflation around .2%, this number should be of great concern. However, the news did not drive mortgage rates any higher. Rates continued to decline through the news and into today. This development provides us with an indication that investor fears with respect to inflation are moderating. This is great news for mortgage rates, and great news for the bond markets.

Last week, Bankrate.com’s overnight average on the 30-year fixed rate mortgage came in at 6.26%, down from the previous Monday’s average of 6.33%. The 15-year fixed rate mortgage followed, averaging 5.77%, down from 5.85%. Adjustable rate mortgages did not fair as well. The 5-year Adjustable Rate Mortgage rose to 5.92%, up from last week’s 5.89%.

Although, Labor Day makes it a short week, this week’s economic calendar could have a big impact. On Friday, the most important economic indicator of the month, the Employment Report will be released. The Employment Report measures how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. Since consumers make up 2/3s of economic activity, this report is considered a significant measure of economic health. If the numbers for August are strong, it could help push rates up. If not, we can expect that rates might continue to decline.

Besides the Employment Report, there will be several speeches given by members of the Federal Reserve Board. Also, the ISM- manufacturing report and the Factory Orders report will be released. Both of these reports will provide us with some insight into the US manufacturing sector.

posted by Vincent Biondillo @ 3:13 PM