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Mortgage Rates Creeping Down The U.S. Treasury markets witnessed a rarely seen yield curve inversion, which occurs when the yield on the two-year note exceeds that of the 10-year note. It happened on Dec. 27 for the first time in five years, and is significant in that previous inversions have preceded economic slowdowns and the recessions of 2000 and 1989. Many pundits are now forecasting economic deceleration in 2006, but recession is not currently in the picture. Expectations that economic growth will slow fostered a one-day Treasury rally that sent the 10-year yield to its lowest level since late September - prices and yields move in opposite directions. This decline in yields, which are used to set rates, allowed lenders to edge them down on many popular products. During a week of scant news, two releases stood out: Existing Home Sales (EHS) for November and Consumer Confidence. EHS slid below 7 million for the first time since March. Sales were down 1.7 percent to an annual rate of 6.97 million units. Even so, the median price of homes is up 13.2 percent from a year ago, but so are inventories. Presently, there is a five-month supply of existing homes on the market. Although total home sales declined, they remain strong by historical standards. Consumer Confidence in December climbed to 103.6 from a revised 98.3 in November - higher than forecast. This is the strongest showing in confidence since August (pre-hurricanes), and once again consumers cited lower gasoline prices and a better job market as reasons for optimism. The Chicago Purchasing Managers Institute index on December business conditions edged down to 61.5 from 61.7. Inventories, new orders and employment were up, but the prices-paid index - an inflation indictor - corrected from unusually high November figures. In addition, first-time unemployment claims rose to 322,000 for the week ended Dec. 24, while the more telling four-week average edged up to 325,000. For the week ended Dec. 23, mortgage applications fell to their lowest level since April 2002, according to the Mortgage Bankers Association. An 11.2 percent decline in refinances led the slide, while purchases dropped 4.5 percent. The rate on the 30-year fixed-rate mortgage (based on zero discount points) edged below 6.0 percent for the first time in six weeks. It is now just above 5.875 percent. The 15-year fixed-rate mortgage retreated to slightly over 5.5 percent, while the rate on the volatile one-year adjustable-rate mortgage fell to 4.375 percent.

The new year begins tentatively with regard to economic indicators, but ends with a bang, as the Employment Report for Decem-ber comes out on Friday. Prior to that the most important data come from the Institute for Supply Management (ISM), which releases both its index on nationwide manufacturing and non-manufacturing (the retail sector) conditions. The ISM on manufacturing is the more important of the two and can move the markets. Other reports include New Construction and Factory Orders for November. During this holiday-shortened period it is unlikely the data on tap early in the week will have the power to move mortgage rates far from present levels.