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Mortgage Rates on the Move

Fear of inflation swept through the bond markets and took its toll on the benchmark 10-year note that lenders use to set mortgage rates. Frantic selling of U.S. Treasury securities, which have their value eroded by inflation, sent prices diving and yields, which move in the opposite direction of prices, soaring. Inflation concerns surfaced as the price of oil climbed to new highs, actually peeking above $55 a barrel before edging back down. The Fed's release of the Beige Book, an overview of the nation's economic conditions in January and February, added to inflation fears. The report showed economic growth in important sectors and a vibrant labor market, and raised the possibility of more aggressive rate hikes by the Fed. The sharp rise in the 10-year yield, which hit its highest level since July, forced mortgage lenders to increase rates on some mortgage products. Economic reports were sparse, with nothing in the way of market-moving news released until Thursday. It came in the form of first-time jobless claims for the week ended March 4, which rose by an unexpected 17,000 to 327,000. The more closely watched four-week average, which smoothes volatility, climbed by 6,000. Continued claims, or people collecting benefits for more than one week, increased to 2.7 million. This report reversed selling in the financial markets, but only temporarily. Wholesale inventories for January rose by a stronger-than-expected 1.1 percent, due in large part to a stockpile of unsold autos lining dealers' lots. Metals and miscellaneous durable goods also accumulated during the month.

Applications to purchase a home crept up 2.7 percent for the week ended March 4, according to the Mortgage Bankers Association's weekly survey on mortgage activity. But applications to refinance fell 4.6 percent, accounting for only 43 percent of mortgage applications. Rates inched up on many mortgage products. The 30-year fixed-rate mortgage (based on zero discount points) is above 5.625 percent, while the 15-year fixed-rate is holding just over 5.125 percent. The introductory rate on the one-year adjustable-rate mortgage is at 3.5 percent.

Economic news is plentiful over the next few days. The reports with the biggest potential to impact the markets are Retail Sales for February and indices on regional manufacturing conditions for March. Other reports on February events include Housing Starts and Building Permits, Industrial Production and Capacity Utilization, and U.S. Import/Export price indices. Because the markets are edgy right now, the slightest sign of inflation could result in selling. If reports meet analysts' expectations, mortgage rates will likely remain near present levels, which - in spite of the recent increases - are still close to historic lows.

Carolyn Siegel Staff Writer carolyn@interest.com