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Mortgage Rates Leaning Toward the Downside

Bond-supportive economic news kept buying in U.S. Treasury securities active, and as a result their yields, which move in the opposite direction of prices, edged down. Since mortgage lenders use yields as a guide to set rates, they were able to bump rates down on certain mortgage products. High oil prices also have come to be regarded as friendly to bonds, as traders believe high energy prices could substitute for Fed rate hikes with regard to controlling economic growth/inflation. There are signs that high gas prices are eating into consumers' discretionary purchases, which will show up in future reports, as consumer spending accounts for about two-thirds of economic activity. Home sales in July were as diverse as two reports could be. Existing Home Sales fell 2.6 percent to an annual rate of 7.16 million units. The decline in sales boosted Treasuries on Tuesday, but a big increase in New Home Sales (NHS) erased those gains. NHS jumped 6.5 percent, outpacing expectations. Sales hit an annual rate of 1.41 million units. Although NHS eased concerns about the housing market, they represent only about 15 percent of single-family home sales. Durable Goods Orders fell by a steep 4.9 percent in July, rallying Treasuries. Even though orders for durables, items meant to last more than three years, are volatile, they were weak across the board, indicating businesses may be easing capital investments as higher oil prices threaten corporate profits. First-time unemployment claims for the week ended Aug. 20 were not a factor. Claims fell by 4,000 to 315,000, while the more closely watched four-week average edged up to 315,000. Continued claims, people collecting benefits for more than one week, were down 9,000 to 2.58 million. And the Consumer Sentiment survey from the University of Michigan showed a decline to 89.1 in August, down sharply from the 96.5 posted in July. Steady-to-lower mortgage rates had little impact on mortgage applications for the week ended August 19, according to the Mortgage Bankers Association. Applications to purchase fell 2.2 percent, while refis rose 1.2 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 under 5.25 percent. The introductory rate on the one-year ARM, although volatile, has been at 4 percent or higher most of the week. A flood of economic news could make for an interesting week. Among the reports carrying the most weight are Consumer Confidence for August, revised second-quarter Gross Domestic Product, the ISM index on August manufacturing conditions, and Personal Incomes/Outlays for July. None is more important, however, than the Employment Report for August, which will be released Sept. 2. Reports showing that oil prices are negatively impacting the economy should support Treasuries and enable mortgage lenders to keep moving rates down.

Carolyn Siegel

carolyn@interest.com