Mortgage Rate Commentary Week of July 20, 2008

Inflation worries moved back to the forefront of concern for the market. Fed Chair Bernanke, in comments before Congress, stated that upside risks for inflation have "intensified" recently. Both the Consumer and Producer Price Indices came in with higher-than-expected headline numbers, and the CPI's core reading also came in above expectations. Housing Starts appeared to make a strong showing by increasing a whopping 9.1%. However, the number was due to an expiration of incentives to start projects in New York. Single-family home starts actually slipped downward.

While mortgage rates did bounce around last week, they are very likely to start this week on an upward slope. The week contains fewer important economic reports, but rates are likely to stay volatile for the foreseeable future. With the specter of inflation, any good economic news, such as a higher-than-expected LET or number of existing homes sold, could drive mortgage rates higher. Poor economic news will help flatten rates, but they are unlikely to slide downward very far.

Weekly Mortgage Rate Commentary

Mortgage rates moved downward last week as fears of a weakening economy outweighed inflation fears. The biggest news of the week was the loss of another 62,000 jobs in June with unemployment holding steady. However, we did get some hopeful news with the ISM Manufacturing Index unexpectedly stepping above 50, indicating a very small amount of expansion in manufacturing. While rates did tick down, there is some concern about how long the Fed can stand pat before increasing interest rates, like the European Central Bank did last week. With the coming election, the pressure to keep rates low will be significant. If the Fed waits until after the election, and inflation creeps higher, the Fed could be forced to end the year with the start of a campaign of increasing rates.

This coming week is very light in terms of economic news to digest. If traders continue to focus more on the challenges in spurring economic growth, we could see mortgages tick downward a bit more. However, if inflation concerns return to the forefront, rates will go up.