Mortgage Rate Update for Week Ending 07-29-05

Mortgage Rates Remain at Elevated Levels

U.S. Treasury prices waffled this week, rising as concerns ebbed about the negative impact on Treasuries from the revalued Chinese yuan, then pulling back again on upbeat economic data. The housing industry and the Fed's Beige Book both painted a picture of a robust economy, and a strong reading from the Chicago PMI spurred further selling. As a result, Treasury yields, which move in the opposite direction of prices, leapt out of their tight trading range and climbed sharply. Although mortgage rates held near previous levels most of the week, they now could edge higher.

The housing market continues to shine, as low mortgage rates in June may have contributed to record-setting sales of both new and existing homes. Existing home sales registered the biggest one-month increase in 25 years, soaring to an annual rate of 7.33 million units. New home sales jumped 4.0 percent to an annual rate of 1.37 million units. Durable Goods Orders in June kept pressure on Treasuries, rising by a stronger-than-expected 1.4 percent. Orders for durables are viewed as a barometer for trends in consumer and business spending.

Countering strong economic reports was a weaker-than-forecast second-quarter GDP that showed no signs of inflation. This, surprisingly, was not cheered by bond traders, who sold on the news. But the Chicago PMI index of business conditions for July accelerated selling by rising to 63.5 from 53.6 in June. There was an unexpected decline in consumer confidence in July. The index fell to 103.2 from 105.8. First-time unemployment claims for the week ended July 22 rose 5,000 to 303,000 after tumbling by 34,000 the previous week. The more closely watched four-week average edged down to 318,250.

An uptick in mortgage rates for the week ended July 22 likely resulted in a steep drop in applications to refinance. According to the Mortgage Bankers Association, refis slid 11.4 percent, while applications to purchase were off by 0.7 percent. The rate on the 30-year-fixed mortgage (based on zero discount points) remains near 5.625 percent, while the 15-year fixed-rate is holding below 5.25 percent. The introductory rate on the volatile one-year ARM soared to 4.0 percent.

August gets going with two ISM reports, the first and most important reflecting July manufacturing conditions. The other survey reports on conditions in the service sector, but it generally does not move markets like the one on manufacturing can. Other news on tap includes Personal Income/Outlays for June that contains one of the Fed's favored inflation indicators, and Construction Spending for June. But the big report comes out Friday - the Employment Situation for July. If economic news comes in on target, mortgage rates are likely to hold near present levels.

Carolyn Siegel

carolyn@interest.com