Mortgage Rate Update for Week Ending 04/22/05

Wild Week Sends Most Mortgage Rates Down

Disappointing earnings reports, weak economic news and big sell-offs on Wall Street encouraged buying of U.S. Treasury securities, sending prices up and yields, which move in the opposite direction of prices, down. Surprisingly negative reports on the housing industry and manufacturing raised the specter of a slowing economy that would require less tightening from the Fed. Huge losses in the equity markets - the Dow Jones Industrials posted triple-digit losses in four of six sessions - resulted in safe haven buying of government issues. The confluence of factors prompted the yield on the benchmark 10-year note to fall below 4.20 percent for a time, allowing lenders who base their mortgage rates on yields to lower them on most products. Bond-friendly economic news began with housing starts in March plunging 17.6 percent to an annual rate of 1.84 million units - the biggest one-month decline since 1991. Starts, however, came off a 20-year high in February. Building permits fell 4 percent to an annualized rate of 2.02 million. The Producer Price Index (PPI), which looks for inflation in wholesale prices, proved better than expected in March. While the PPI rose 0.7 percent, well above the 0.4-percent reading of the previous month, the core rate, which eliminates volatile energy and food, crept up by a weaker-than-expected 0.1 percent. The report calmed inflation fears.

The Consumer Price Index (CPI) for March was not as reassuring. CPI shot up 0.6 percent and the core rose 0.4 percent - the biggest one-month increase since August 2002. But huge increases in lodging and apparel prices created a disproportionate rise that eased traders' concerns. A drop of 36,000 in first-time unemployment claims temporarily rattled traders. Claims for the week ended April 15 fell below 300,000 to 296,000 for only the second time since October 2000. The four-week moving average slid to 8,500. And a steep increase in the April Philly Fed index on manufacturing conditions - up to 25.3 from 11.4 - spawned a wave of selling.

Mortgage activity was off for the week ended April 15 in spite of lower rates, according to the Mortgage Bankers Association. Applications to purchase fell 1.6 percent, as did refis. The rate on the 30-year-fixed mortgage (based on zero discount points) fell below 5.625 percent, while the 15-year fixed-rate is under 5.25 percent. The introductory rate on the volatile one-year adjustable-rate mortgage edged down to just above 3.50 percent. The last week of April features a host of market-moving economic data covering housing, manufacturing, consumer sentiment and first-quarter Gross Domestic Product. The one to watch, however, is Personal Income/Spending for March. This report contains the Fed's favored inflation indicator and comes out just days prior to the May 3 meeting of the Federal Open Market Committee. If these reports come in on target and point toward slow economic growth, mortgage rates should hold near present lower levels.