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Mortgage Rates Remain at Lower Levels

Strong housing sales kept pressure on U.S. Treasury securities early in the week, but a combination of weak economic news and some disappointing earnings reports sent buyers back to bonds. Signs of a slowing economy have moved to the fore, and Treasury traders are counting on these signals to keep the Fed's rate hikes contained. Signs of inflation, which also are cropping up on a regular basis, have not impacted Treasuries as yet. Traders generally fear inflation as it erodes the value of fixed-rate assets such as bonds. Steady buying in Treasuries sent prices up and yields, which move in the opposite direction of prices, down. This has allowed mortgage lenders who base their rates on yields to hold them at low levels on most products. The housing market continues to sizzle in spite of naysayers warnings of a “housing bubble.” March housing sales defy that outlook, with strong gains in both new- and existing-home sales. Sales of new homes soared 12.2 percent to an annual rate of 1.43 million units, and existing homes sold at an annualized rate of 6.89 million units -a 1.0-percent increase. Consumer confidence in April took a dive, hitting a five-month low of 97.7. Evidence of a slowing economy and the high price of oil tainted future expectations. Orders for durable goods, items meant to last more than three years, shocked Wall Street by falling 2.8 percent in March when a 0.3-percent gain was expected. The steep decline in orders indicated to many that businesses are scaling back spending - a big negative for economic growth. First-quarter Gross Domestic Product (GDP) confirmed this outlook. GDP rose a mere 3.1 percent as opposed to a fourth-quarter increase of 3.8 percent and a forecast of a 3.5-percent increase. Lower mortgage rates during the week ended April 22 spurred a rash of mortgage activity, according to the Mortgage Bankers Association. Applications to purchase rose 3.3 percent, but there was a run on refinancings, which climbed 9.8 percent. The rate on the 30-year-fixed mortgage (based on zero discount points) is well below 5.625 percent, while the 15-year fixed-rate is holding under 5.25 percent. The introductory rate on the volatile one-year adjustable-rate mortgage crept up to 3.625 percent. The first week of May features a barrage of economic reports on manufacturing, but two items will guide the financial markets -- the May 3 meeting of the Federal Open Market Committee and the Employment Report for April. Although the Fed is expected to raise interest rates by 25 basis points for the eighth time since June 30, 2004, there is always anxiety over what the Fed will say about the economy in the accompanying statement. And the jobs report, due May 6, will impact trading in both Treasuries and equities. In the early part of the week, barring any major surprises, mortgage rates should remain near present levels.