Excerpts from HSH Associates Newsletter for the week ending February 2, 2007:
Mortgage rates continue to move higher, with the average 30-year fixed rate mortgage (FRM) climbing by seven basis points (.07) to 6.45%, according to the nation’s widest survey of mortgage rates and terms. Five-one Hybrid ARMs added five basis points, closing the weekly survey at 6.24%. Now more than a quarter-percentage point higher than their December lows, mortgage rates are climbing as they reflect an economy which seems a tad irrepressible at the moment. While it was expected that growth in the 4th quarter of 2006 was better than the 2% GDP seen in the third quarter, the 3.5% advance estimate of GDP growth was way above expectations, and stands above the level believed to be needed to help inflationary pressures remain contained, known as the economy’s ‘potential’.
Absent a slowdown in growth, it seems unlikely that inflation will moderate much from these levels, and more growth and firm inflation means any rate cuts by the Fed are moved well off into the future. The futures markets are now betting that the first rate cut may not come until December. Bond markets took some solace in the lack of renewed inflation pressure and the Fed’s characterization of improving inflation, and underlying interest rates eased a little during the week; mortgage rates will probably hold pretty firm next week, maybe even shedding a basis point or two.
|Week ending February 2, 2007|