Mortgage Rate Update for Week Ending 04/15/05

Mortgage Rates Remain at Lower Levels The minutes from the March 22 Federal Open Market Committee meeting, released April 12, cooled inflation concerns and heated up buying in U.S. Treasuries during the week. The report suggested solid economic growth was not inflationary and there was no urgency to pick up the pace on rate hikes. Concern about a 50-basis-point rate increase had loomed large as the price of oil climbed and strong economic data appeared possible. But reassurance from the Fed, a sharp decline in oil prices, and so-so economic reports sent Treasury prices up and yields, which move in the opposite direction of prices, down. The yield on the benchmark 10-year note that lenders use as a guide to set mortgage rates closed at 4.35 percent the day the minutes were released - its lowest level in more than a month. Low Treasury yields influenced mortgage lenders to hold rates near present low levels.

Second only to the Fed minutes in importance were the March data on retail sales. Weaker-than-expected by far, sales rose a mere 0.3 percent when analysts were expecting a gain of 0.8 percent. And when auto sales were excluded, sales edged up by only 0.1 percent, with apparel and department stores taking the biggest hits. Bond traders who see slower economic growth as a positive because it signals controlled inflation welcomed these numbers.

The U.S. trade deficit hit a new high in February, expanding to a record $61.0 billion, and first-time unemployment claims fell by 10,000 for the week ended April 8, coming in at 330,000. The more closely watched four-week average, which smoothes volatility, rose to 338,000, and continuing claims - people collecting benefits for more than one week - fell to 2.66 million. Business inventories in February matched estimates,climbing 0.5 percent, but sales fell 0.4 percent - the biggest one-month decline in almost two years.

Lower mortgage rates for the week ended April 8 propped up mortgage activity, according to the Mortgage Bankers Association. Applications to purchase rose 6.4 percent, and refinances increased 5.6 percent. Rates continue at attractive levels, with the rate on the 30-year-fixed mortgage (based on zero discount points) below 5.75 percent. The 15-year fixed-rate remains just above 5.25 percent, while the introductory rate on the volatile one-year adjustable-rate mortgage climbed to 3.625 percent.

The most-watched upcoming reports on the schedule will be two inflation indicators - the Producer and the Consumer Price indexes- that look for inflation at the wholesale and retail levels, respectively. Any inflation sign will spur selling in bonds, as it erodes the value of fixed-rate assets. Housing starts will give the first look at the April housing market, and the Philly Fed report will shed light on manufacturing in the mid-Atlantic region in April. The Fed's Beige Book -- an overview of the nation's economy - is also due. If inflation remains under control, mortgage rates will likely near present levels.