Mortgage Rates Hold Steady on Mixed Bag of Economic News

Home Mortgage Rate hold steady for the third straight week as the mortgage market is peppered with offsetting economic and housing indicators. Although there were several deviations from analyst estimates and expectations, notably in the Consumer Price Index and existing home sales, there were equally offsetting data in declining energy prices, a strengthening dollar, and record foreclosures. This mix and confusing bag of inputs seemed to leave the market feeling safer not to tinker with the status quo.

Mortgage Rates

Freddie Mac's weekly survey of mortgage rates reflect little or no change from last week or year-over-year. The 30-year fixed rate remains at 6.52% with little movement from 6.62% at the same time last year. Likewise, shorter term rates like the 15-year fixed and even 1-year ARMS have only only slight movement. The 15-year fixed averaged 6.07% a slight decline from 6.10% last week and 6.30% a year ago. The 1-year ARM moved down slightly as well from 5.18%, from last week's 5.22%, and last year's 5.67%.

Mortgage rates will probably continue to hover until more consistent direction is seen in inflationary and housing numbers.

Home Sales and Pricing

Alan Greenspan had economist chattering about his attempt to once again call the bottom of the housing market with patented caveatted statements like, "Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009 [but] prices could continue to drift lower through 2009 and beyond."

This week's data simply showed that no one can call this housing market.

The National Association of Realtors surprisingly reported the increase in pending existing home sales in June. However, most astute economist and housing experts rushed in to caution these are not closed sales, but simple pending contracts. This points to a rational and cautious conclusion that these numbers simply capture a flurry of bargain hunters submitting unrealistic, and likely to be rejected offers, on the surging glut of foreclosures and bank REO properties.

Certainty remains that housing prices will continue to decline as housing inventories continue to bloat. RealtyTrac revealed a key source of the problem reporting a 53% year-over-year increase in foreclosures and a staggering 184% year-over-year increase in bank repossessions and REO.

Inflation Worries

Inflationary worries continue to loom as this week's Consumer Price Index (CPI), jumping 5.6% year-over-year, showed that consumers are paying more for the "bare necessities of life." This is the largest increase in 17 years. Recent CPI increases have been excused by rising energy cost--now oil prices a retracting.

Strengthening indicators of rising inflation and a stumbling economy is going to continue to make each new Fed meeting more challenging.

Lenders Tightening Standards

All the while, banks and GSEs are fighting off risk and bleeding mortgage portfolios. Lending standards continue to tighten leaving even good credit borrowers wondering how they might refinance or buy homes.

In a swift and indicative risk mitigation move Freddie Mac reacted to new New York, consumer foreclosure friendly, legislation by ceasing to finance New York subprime mortgages.

As local markets continue to deteriorate at radically different rates look for similar response from other lenders and mortgage insurers.

Write to Bill Rice at bill.rice@mortgageloan.com