Mortgage Rate Update for Week Ending 05/06/05

Mortgage Rates Mostly Unchanged

U.S. Treasury securities moved up one day and fell the next, but they ended the week on a down note after a stronger-than-expected April employment report was released. Big gains in employment spurred selling in Treasuries as traders saw hope of a pause in Fed rate hikes evaporate. The Fed raised short-term interest rates on Tuesday by an expected 25 basis points but left the important elements of the accompanying statement intact. Economic news was erratic, with some reports coming in stronger than expected, while others missed the mark. Word of the possible reintroduction of the 30-year bond put pressure on current long bonds but had little impact on the benchmark 10-year note. Although the yield on the 10-year, which moves in the opposite direction of price, rose on the jobs report, mortgage rates, which are based on yields, held near levels of last Friday.

In April there were 274,000 jobs added to non-farm payrolls, and job creation in February and March was upwardly revised. Earnings edged up a bit more than forecast, rising 0.3 percent to $16.00 per hour. The Institute of Supply Management's (ISM) index on April manufacturing conditions was weaker than expected. The 53.3 reading was well below the 55.2 reported in March, and the closely watched 'prices paid' index edged down. On the other hand, construction spending in March rose 0.5 percent, hitting a record annual rate of $1.05 trillion. Factory orders for March surprised analysts by rising 0.1 percent, but the ISM index on the service sector fell to 61.7 from 63.1. First-quarter productivity - output per work hour - rose 2.6 percent, outpacing the 2.1 fourth-quarter gain. Labor costs increased by 2.2 percent. First-time unemployment claims rose by 11,000 to 333,000. The more closely watched four-week average dropped by 2,000 to 321,500, its lowest level in two months.

Mortgage activity was relatively quiet for the week ended April 29, according to the Mortgage Bankers Association. Applications to purchase ticked up 0.1 percent, and refinancings edged up 0.4 percent. The rate on the 30-year-fixed mortgage (based on zero discount points) remains well below 5.625 percent, while the 15-year fixed-rate is holding under 5.25 percent. The introductory rate on the volatile one-year adjustable-rate mortgage edged down to 3.5 percent.

Each month there is one slow week with regard to economic reports, and the week of May 9 is the one for this month. Of the handful of reports due, the most influential should be retail sales for April, the trade balance for March, and April import/export price indices. Wholesale and business inventories for March, and the University of Michigan sentiment survey also are on the docket. If reports come in close to forecasts, activity in the Treasury markets should be calm, allowing mortgage rates to remain near present levels.