Mortgage Rate Update for Week Ending 12-2-05

Mortgage Rates Mostly Unchanged

A torrent of economic releases sent U.S. Treasury securities on a bumpy ride, with traders buying one day only to sell-off the next. The bottom line -- inflation appears to be under control. And this was key in keeping Treasury yields, which move in the opposite direction of prices, from climbing much higher. This allowed mortgage rates that are based on yields to remain near last week's levels.

News on the inflation front was largely positive, with personal consumption expenditures (PCE) in two reports showing slight declines and wages in the November Employ-ment Report showing a modest increase. This encouraged Treasury traders to believe that the Fed might end its series of rate hikes sooner rather than later. Although third-quarter Gross Domes-tic Product soared to 4.3 percent, the inflation gauge edged down a notch to 1.2 percent. And PCE for personal spending/income in October slid in spite of gains in both income and outlays.

The employment report came in on target, with 215,000 jobs added to non-farm payrolls and unemployment holding at 5 percent. Housing sales in October were diverse, at best. Existing home sales fell 2.74 percent to an annual rate of 7.09 million units while new home sales soared 13 percent to a record-breaking 1.42 million units annual rate. The consensus, however, is that the housing market is slowing at a measured pace. Consumer confidence shot up to 98.9 due to falling gas prices and an improved job market.

The Chicago Purchasing Managers Index for November business conditions sank Treasuries in spite of a slight decline. The villain? The 'prices paid' component that hit a 26-year high, evoking fears of coming inflation. But the Institute of Supply Management index of manufacturing conditions, released the following day, showed a tepid 'prices paid' component, allowing traders to exhale. Other key reports included Durable Goods Orders for October, which rose a scant 0.3 percent excluding transportation, and a sharp decline in first-time unemployment claims.

Mortgage applications for purchases and refinances were off for the week ended Nov. 25, according to the Mortgage Bankers Associa-tion. Purchases fell 0.8 percent, while refis dropped 6.3 percent. The rate on the 30-year fixed-rate mortgage (based on zero discount points) is holding above 6.0 percent, while the 15-year fixed-rate mortgage remained near 5.625 percent. The rate on the volatile one-year adjustable-rate mortgage slid to 3.875 percent.

In the feast-or-famine world of economic news, this week is a famine, with little market-moving data due. This will leave the financial markets looking for guidance. Because the November Employment Report came in on target, it is possible that mortgage rates will remain fairly steady.

Carolyn Siegel

carolyn@interest.com