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Mortgage Rates Retreat to Previous Levels

All things considered, it's been a good week for mortgages. The weak November employment report released December 3 rallied U.S. Treasury securities, sending yields, which move in the opposite direction of prices, plummeting from four-month highs. Yields remained low thanks to a couple of sessions devoid of market-moving data. Then an auction of 5-year notes, which foreign investors embraced at record levels, spurred aggressive buying that sent yields back down to early November levels. Late-week economic data came in below forecast and kept buying in Treasuries steady, allowing lenders who use yields to set mortgage rates to edge them back down. Economic reports were mixed, with the producer price index rising 0.5 percent, but down substantially from the 1.7 percent jump in October. The core, which eliminates volatile food and energy prices, met estimates, rising 0.2 percent. Once again, energy prices drove the increases. Revised third-quarter productivity slowed to a 1.8 percent pace, the worst in two years. Costs, however, increased by 1.8 percent. First-time jobless claims jumped unexpectedly to 357,000, and the closely watched four-week average also rose. Import/export prices indices climbed a bit in November, but inflation remained tame. The University of Michigan consumer sentiment survey rose to 95.7, putting a little pressure on Treasuries. The price of oil is also climbing again after OPEC ministers voted to cut surplus production by 1 million barrels a day. There was mixed reaction to the increase in mortgage rates for the week ended December 3, according to the Mortgage Bankers Association. Applications to purchase soared 6.6 percent, but refinances were off 1.1 percent. Rates crept back down, with the 30-year fixed-rate mortgage (based on zero discount points) now below 5.5 percent, and the 15-year fixed-rate mortgage well under 5 percent. The introductory rate on the volatile one-year adjustable-rate mortgage is right at 3.25 percent. Not only will the Fed meet during the next few days -- and it is expected to raise short-term interest rates again -- but there also will be meaningful reports on retail sales, manufacturing conditions, the U.S. trade deficit, housing starts for November, and the consumer price index, which looks for inflation at the retail level. Each of these reports could impact the financial markets, which also will be influenced by volatile oil prices and the status of the dollar. If the reports come in near forecast, mortgage rates should hold near present levels.