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Mortgage Rates Begin to Creep Down

An influx of capital into the U.S. Treasury markets and signs of controlled inflation brought buyers back to bonds. A three-day rally that saw Treasury yields, which move in the opposite direction of prices, fall to their lowest levels since late October, provided slight relief for some mortgage rates, which remain near their highest levels since June 2004. The consumer and producer price indexes for October, which look for inflation at retail and wholesale levels, respectively, revealed price stability. The Consumer Price Index rose 0.2 percent due to higher prices of natural gas and food, but when these were excluded, the key core rate edged up 0.2 percent. Likewise, the Producer Price Index rose 0.7 percent due to increased prices of plastics and building materials (hurricane related), but the core rate fell by a very acceptable 0.3 percent, allaying traders' fears of inflation, which erodes the value of fixed-rate assets.

Tame October Retail Sales, which were down by a less-than-expected 0.1 percent, came in flat when auto sales and a hike in natural gas prices were eliminated. This erased visions of a spending consumer, which also bolstered Treasuries. In a separate report, the Philly Fed index on November business conditions fell to 11.5 from 17.3, with declines in prices paid and new orders offering additional support to bond traders.

Housing Starts and Building Permits slid in October, with starts down 5.6 percent to a still-healthy annual rate of 2.01 million units. Permits, which suggest future starts, also declined by 6.7 percent to an annual rate of 2.07 million. Starts were down in all four regions of the U.S., while permits were off in all but the Midwest. Industrial Production in October rose 0.9 percent, while Capacity Utilization edged up to 79.5 from 78.9. Business Inventories rose 0.5 percent in September and business sales climbed 0.6 percent, with a tightening inventory-to-sales ratio indicating possible increases in future production.

The Mortgage Bankers Association reported a mixed picture for mortgage applications. Purchase applications rose 2.4 percent over the previous week, while refis decreased 5.4 percent for the week ended Nov. 11. The rate on the 30-year fixed-rate mortgage (based on zero discount points) crept down to just over 6.0 percent, while the 15-year fixed-rate mortgage rate held above 5.625 percent. The rate on the volatile one-year adjustable-rate mortgage climbed to 4.25 percent.

Thanksgiving week is short in both duration and market-moving economic news. The final consumer sentiment survey for November from the University of Michigan could wield some influence - especially after the increase shown two weeks ago. And the minutes of the Nov. 1 meeting of the Fed will be scoured for hints of future rate hike intentions. The Index of Leading Indicators for October, which looks at the economy three to six months down the road, and first-time unemployment claims for the week ended Nov. 18 also are on tap but have little clout. With scant news and substantially reduced volume due to the holiday expected, it is likely that mortgage rates will not stray far from present levels.

Carolyn Siegel

carolyn@interest.com