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Mortgage Rates Remain Low--15-Year Rate Slides

Mortgage rates remained low and the 15-year mortgage edged below 5 percent amid a host of bond-friendly data. Climbing oil prices, mediocre corporate earnings, and benign economic reports combined to rally U.S. Treasury securities. These weak economic signals also spurred safe-haven buying as investors drew funds from stocks and put them into government issues. This resulted in higher Treasury prices and lower yields, which move in the opposite direction of prices. Low yields, which mortgage lenders use as a guide to set mortgage rates, have kept rates at attractive levels. The drop in the 15-year rate could be significant as it is popular among those refinancing. The most widely anticipated economic report—the consumer price index (CPI) that checks for inflation at the retail level—was a non-event. The CPI rose an expected 0.2 percent, but the core rate that eliminates volatile food and energy prices rose 0.3 percent. But much of that increase was due to a few exceptional increases. Housing starts in September fell 6 percent, but some of that was due to hurricanes and storms in the Southeast, and building permits actually rose to an annual rate of 2.01 million. The index of leading indicators, which looks at the economy three to six months ahead, posted a negative number for the fourth straight month—falling 0.1 percent. First-time jobless claims plunged 25,000 to 329,000—the lowest level since July 2001. But new job creation remains sluggish. The Philly Fed survey on manufacturing conditions rose significantly, but pockets of weakness kept a lid on selling.

Lower rates spurred mortgage activity for the week ended October 15, according to the Mortgage Bankers Association. Purchase applications rose 5.8 percent, and refinances surged 10.6 percent. The 30-year fixed-rate mortgage (based on zero discount points) fell below 5.5 percent, while the 15-year fixed-rate mortgage is slightly above 4.875 percent. The introductory rate on the volatile one-year adjustable-rate is holding near 3.25 percent.

The last week of the month is loaded with economic reports, and it also is the last week before the election. Reports on new and existing home sales, durable goods, the first look at third-quarter GDP, consumer confidence and manufacturing data will help to shape the economic picture. If reports are on target and free from inflationary worries, mortgage rates should hold fairly steady.