Mortgage Times

[Adam in CO]

Tame Inflation Data Lowers Mortgage Rates


One economic event was responsible for most of the movement in mortgage rates last week. A lower than expected reading on core inflation in Tuesday's Consumer Price Index (CPI) report led to a three-day rally in mortgage markets, leaving mortgage rates lower than one week ago. The core price level of consumer goods increased at a 2.5% annual rate in March, below the consensus forecast of 2.7%, and the reaction in mortgage markets was swift.


In light of recent statements from Fed officials, the lower than expected inflation data was particularly significant. According to the Fed, there's now a greater chance that the economy will slow down. Without an inflation threat, the Fed would ordinarily lower interest rates to stimulate faster growth, but concerns about higher inflation have reduced the Fed's willingness to exercise this option. If the inflation rate continues to trend lower, the Fed's hands will no longer be tied, and the probability of future rate cuts will increase.

In the housing sector, Tuesday's report on March Housing Starts contained good news for the housing market, with figures which exceeded the consensus estimates. March Building Permits, a leading indicator for future activity, also came in at higher than expected levels. With the recent troubles in the subprime mortgage market, many economists had been concerned about the potential for a steep decline in Housing Starts, but those fears have not materialized. As the important spring homebuying season gets underway, this data was encouraging.

• Also Notable:
• Core CPI inflation increased at a 2.5% annual rate in March, down from a peak of 2.9% last September
• The April Home Builders confidence index declined to the lowest level of the year
• A Supreme Court ruling upheld that federal regulations preempt state regulations for national banks
• The National Assoc. of Realtors urged lawmakers to reform the Federal Housing Admin. (FHA) to ease the subprime mortgage troubles

Average 30 yr fixed rate: Last week:+0.05%This week:-0.07%Stocks (weekly): Dow:12,933+326NASDAQ:2,524+33

Week Ahead


The biggest economic news on next week's schedule is Friday's release of the Gross Domestic Product (GDP) figures for the first quarter of 2007. GDP is the broadest measure of economic activity, and estimates have been moving lower in recent weeks, so this will be a highly anticipated report. Wednesday, Existing Home Sales and New Home Sales data will shed some light on the condition of the housing market. Durable Orders, an important indicator of future economic activity, will also be released that day. In addition, Consumer Sentiment and Consumer Confidence will appear on next week's schedule, and a 5-yr Treasury auction on Thursday will round out the economic calendar.