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Mortgage Rates Remain Low

A rally in U.S. Treasury securities that lasted almost two weeks screeched to a halt when Fed officials and minutes from the May 3 meeting of the Federal Open Market Committee made it clear that rate hikes would continue - albeit at a “measured pace.” Recent tepid economic reports lulled bond traders into thinking the Fed might pause its program of credit tightening, but selling ensued when those hopes were dashed. Treasury prices fell and their yields, which move in the opposite direction of prices, edged up. This forced the yield the benchmark 10-year note that lenders use as a guide to set rates off its 4.03-percent reading -- the lowest in almost four months. Although the yield edged up, mortgage lenders held rates on most products near their lowest levels since February. Housing sales continued to shine in April, with Existing Home Sales hitting an annual rate of 7.18 million units -- another record. It also was noted that median home prices rose 15.1 percent from those of one year ago. New Home Sales (NHS) were a bit more complicated due to a major downward revision for March, but the bottom line was that NHS also set a record in April, coming in at an annual rate of 1.32 million units. Orders for Durable Goods, big-ticket items meant to last three years or more, made its first gain in five months, rising 1.9 percent in April. Excluding transportation, however, orders edged down 0.2 percent. This first revision of first-quarter Gross Domestic Product showed the economy grew at an annual rate of 3.5 percent - up from the previous reading of 3.1 percent. The gain was largely due to the narrowing of the trade deficit in March. The inflation components within the GDP remained flat - a reading welcomed by both stocks and bonds. First-time unemployment claims for the week ended May 20 rose by a scant 1,000 to 323,000, and the more closely watched four-week average rose to 330,500 - an increase of 500.

Low mortgage rates spurred a resurgence in applications for the week ended May 20, according to the Mortgage Bankers Association. Applications to purchase were up 2.8 percent, while refinancings grew 6.4 percent. The rate on the 30-year-fixed mortgage (based on zero discount points) is right at 5.50 percent, while the 15-year fixed-rate is holding at 5.0 percent. The introductory rate on the volatile one-year adjustable-rate mortgage is below 3.375 percent.

There is a lot of news packed into the four-day week following the extended Memorial Day weekend. Information on manufacturing and consumer confidence could move the markets in the early going, but as the week winds down all eyes turn toward the Employment Report for May, due on June 3. Although estimates for new jobs are well below the 274,000 added to April payrolls, the report will make an impact. If upcoming data are on target, mortgage rates could hold near present levels.

Carolyn Siegel, Staff Writer - Interest.com