Excerpts from HSH newsletter for the week ending October 27, 2006:
Fixed mortgage interest rates barely budged this week as the average 30-year fixed-rate mortgage (FRM) increased by two basis points. As expected, the Federal Reserve left interest rates untouched at the close of Wednesday’s meeting of the Open Market Committee. The Federal Funds and Discount Rates remained unchanged for the third consecutive meeting, and — provided the economy holds near present levels — the Fed may be done moving interest rates for 2006. The steady Fed and slower growth had a reasonable effect on bond markets this week, as market interest rates largely declined. Mortgage rates will follow, as yields have moved a sufficient amount as to drag rates down with them. The 10-year Treasury yield (a fair proxy for fixed-rate mortgages) declined better than an eighth-percentage point between Tuesday and Friday, so rates should head lower as we turn into next week. Mortgage rates should be a bit lower next week, but at least some uncertainty related to the above keeps it a modest move downward of a handful of basis points, at best. It’s too soon for even weak numbers to tilt the Fed’s hand in favor of an easing, so the downside remains limited.