Mortgage Rate Update for Week Ending 07-22-05

Mortgage Rates Creep Up

Prices on U.S. Treasury securities remained relatively stable early in the week in spite of concerns about what Fed chief Alan Greenspan would say on Capitol Hill, impending rate hikes and the huge trade deficit. Capital flows data for May showed that although enough Treasuries were purchased to cover the May trade imbalance, there was concern regarding decreased participation from some foreign countries, including China. This raised a yellow flag in the Treasury markets and ignited a massive sell-off. After a two-day rebound, China announced it would revalue its currency and let it "float" against a "basket of currencies" rather than tying it to the dollar. Bond traders sold on fear this move would reduce demand for long-term Treasury bills and bonds, and Treasury prices plummeted. Two sessions of strong selling put upward pressure on yields, which move in the opposite direction of prices, and mortgage rates, which are based on Treasury yields, rose on most products - especially ARMs.Housing Starts in June remained flat, surprising analysts who expected an increase. But they matched May's annual rate of 2.004 million units - a number that continues to show vibrancy in the market. And June Building Permits, often a clue to future starts, rose to an annual rate of 2.11 million, beating forecasts and May's 2.06 million total. First-time unemployment claims for the week ended July 16 plunged 34,000 to 303,000 due to the decline in autoworker layoffs during the summer hiatus for retooling. The more accurate four-week average fell to 318,000, and continued claims, people receiving benefits for more than one week, declined to 2.58 million. In a separate report, the Philadelphia Fed index of manufacturing conditions climbed out of negative territory to 9.6, showing expansion in the sector.Mortgage activity for the week ended July 15 was mixed, according to the Mortgage Bankers Association. Applications to purchase were stable, edging down only 0.1 percent, while refis rose 2.5 percent. The rate on the 30-year-fixed mortgage (based on zero discount points) climbed to just below 5.625 percent, while the 15-year fixed-rate edged up near 5.25 percent. The introductory rate on the one-year ARM soared to 3.75 percent.

July goes out with a bang, as it features 10 economic reports that could be market movers. During the week we get the first look at second-quarter Gross Domestic Product, Existing and New Home Sales for June, and two reports on consumer confidence. Also slated are data on durable goods, manufacturing and employment. If these reports point to continuing economic strength or hint of inflation, Treasury yields could creep up, but if the indicators come in on target or miss forecasts, rates should hold near newly elevated levels.

Carolyn Siegel

carolyn@interest.com