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Mortgage Rates Creep Back Up

A slew of upbeat economic indicators and Fed Chairman Alan Greenspan's testimony before Congress ignited steady selling in U.S. Treasury securities. Prices fell and yields, which move in the opposite direction of prices, headed up. The positive economic news heightened concern that the Fed might be more aggressive with rate hikes in the near-term. Greenspan admitted he could not explain why yields on long-term Treasuries remain low while shorter-term interest rates are rising, terming this situation “a conundrum." In addition, the Fed chief said the statement regarding rate hikes would change, but he did not say when. These comments, and his assessment of an “expanding” economy, added to selling. Mortgage lenders who base their rates on yields have therefore been forced to edge rates up on many products. Better-than-expected retail sales in January ignited the slide in Treasuries. Although sales fell 0.3 percent, the loss was due to weak demand for autos. When car sales were excluded, sales rose 0.6 percent - the strongest gain since October. Housing starts also had their best showing in 21 years. January starts rose 4.85 percent to an annual rate of 2.16 million units, and building permits climbed to 2.11 million. First-time weekly unemployment claims fell by 2,000 when an increase of 12,000 was expected, and the more influential four-week average slid to its lowest level since October 2000. January U.S. import/export prices indices rose with increases in petroleum the leading cause. Imports jumped 0.9 percent, but gained only 0.2 percent excluding petroleum products. Nevertheless, this put pressure on bonds. Export prices were up 0.7 percent.

Although mortgage rates dipped during the week ended Feb. 11, the impact on mortgage activity was minimal. According to the Mortgage Bankers Association, applications to purchase rose 4.8 percent, while refis were up 4.1 percent, accounting for 50 percent of mortgage applications. The 30-year fixed-rate mortgage (based on zero discount points) rose slightly above 5.375 percent. The 15-year fixed-rate neared the 5.0 percent mark, and the introductory rate on the volatile one-year adjustable-rate mortgage is just below 3.50 percent.

The last full week in February is short due to the observance of Presidents Day, but there are several market-moving reports on tap. The Consumer Price Index, which checks for inflation at the retail level, probably carries the most weight. But the Consumer Confidence report for February, durable goods orders for January, revised fourth-quarter Gross Domestic Product and existing home sales in January also have the ability to rattle the financial markets. If data come in stronger than expected, pressure on Treasuries might increase. At some point this could result in mortgage rates creeping up further.