Weekly Mortgage Rate Commentary

After months of appearing to be only marginally affected by housing and credit challenges, both manufacturing and the labor market began to show signs of stress in December. The ISM Manufacturing Index came in at 47.7. Readings below 50.0 indicate that manufacturing is very likely to be contracting. The Employment report was also disappointing with a surge in the unemployment rate from 4.7°/0 to 5.0%, and only 18,000 new jobs were created in December. Mortgage rates fell across the board as the probability grew for a rate cut from the Fed at the end of the month. On a very positive note, existing home sales popped up to an annualized rate of 5 million units. The markets are beginning to see positive signs that the Fed's efforts to encourage lending are working.

Mortgage rates are likely to trend downward during this week with very little economic data due to be released. If their are signs in the next few weeks that inflation is moderating, the Fed may be able to aggressively cut rates, which would likely pull mortgage rates further downward and spur more home sales.