Mortgage Rate Update for Week Ending 01/14/05

Mortgage Rates Remain on Track

After two weeks of volatility, fixed-rate mortgage rates have settled back into the comfortable groove they have been in since September, but some adjustable rates remain a bit higher. U.S. Treasuries benefited from safe-haven buying as Wall Street weathered a one-day sell-off. Oil prices rose this week, which bond traders equate with weaker consumer spending due to higher gas prices. This would keep economic growth subdued. A big increase in the trade deficit also soothed the bond markets, as it will likely take a 1 percent chunk out of GDP fourth-quarter growth, which could reduce the Fed's need to raise interest rates. But a big jump in industrial production ignited selling in Treasuries in spite of a benign producer price index. This sent Treasury yields, which move in the opposite direction of prices, back up. The change in yields, which lenders use as a guide to set mortgage rates, was not strong enough move rates.

The were several significant economic reports released, and Treasuries were looking for the producer price index reading that could indicate inflationary pressures. The index, however, fell 0.7 percent due to the decline in oil prices and the core, which eliminates food and energy prices, rose 0.1 percent. This was bond friendly news, but a 0.8 percent increase in industrial production was not. For the year production rose 4.1 percent - the biggest increase in four years. The U.S. trade deficit for November hit a record $60.3 billion. Although the dollar fell on worries that foreign investors might shy away from U.S. investments, Treasuries held. December retail sales beat estimates, rising 1.2 percent. Excluding auto, however, sales rose only 0.3 percent. Oddly enough, furniture and home goods were strong sellers, but traditional holiday items, such as apparel and electronics were down. First-time jobless claims rose again, this time by 10,000 to 367,000 for the week ended January 7, while the more accurate four-week average added 12,750 claims.

Mortgage applications came in mixed for the week ended January 7, according to the Mortgage Bankers Association. Applications to purchase fell 5.8 percent, while refis were up 1.1 percent, accounting for 49 percent of mortgage transactions. The 30-year fixed-rate mortgage (based on zero discount points) is slightly above 5.5 percent, while the 15-year fixed-rate is just over 5 percent. The introductory rate on the volatile one-year adjustable-rate mortgage edged back down 3.5 percent.

Upcoming economic reports will begin on Wednesday with the NY index on manufacturing conditions, housing starts and building permits, and the all-important consumer price index that checks for inflation at the retail level. On Thursday weekly unemployment claims will be released, along with the Philly Fed survey on manufacturing conditions, and the index of leading indicators, which looks at the economy three to six months ahead. A consumer sentiment survey will be the sole report on Friday. If economic indicators come in near estimates, mortgage rates will likely remain near present levels.