The Bridgewaters, Massachusetts

Mortgage Commentary

As expected, mortgage rates increased slightly last week.  Rates continue to be pulled up by rising inflation which is fueled by rising energy costs.  Just like gas prices, we don't expect much relief any time soon.  However, unlike gas prices, rates are still historically low.  We recommend getting locked now before they get out of control.

The fear of inflation continues to drive long-term rates up despite what the Fed would like to see, and once again we see the Fed has no control over long rates. The current rise in prices for oil and food staples show no signs of letting up, and if this continues, so will the fear of inflation and higher rates.

I hate to beat a dead horse, but inflationary concerns will continue to impact key aspects of the overall economy, which will have a trickle-down effect. The Fed is in a very tough position and will not likely raise rates to combat inflation in a recessionary environment. The end result is mortgage rates moving higher.

Still, the modestly stronger growth story from two months ago isn't a reliable indicator of where we presently are, or especially where we'll go from here. Economic prospects remain dicey, even when boosted by usual and unusual actions by the Federal Reserve, which expanded the Term Auction Facility again for June and is now making some $225 billion available in three separate auctions instead of $150b in two. By no means are financial markets out of the woods yet, even if we're cheered by a pickup in growth.

This week brings us the release of a couple important pieces of economic data in addition to some moderately important reports.  There are a total of four or five reports that are worth watching and are most likely to affect mortgage rates. The big report is the one covering employment, which should be mildly negative. Wide-ranging survey of factory and service-business activity from the Institute of Supply Management are due, too, along with vehicle sales (likely poor), Construction Spending and estimate of worker productivity. Inflation may have won the day last week, but the collective tenor of the reports from next week will probably be a weak one, sufficient to cap this week's rise and keep rates pretty steady.

Overall, look for Friday to be the most important day of the remaining week with the release of May's Employment figures.  This morning's data failed to drive bond prices or mortgage rates in any direction, but Friday's data most likely will. If we see stronger than expected readings Friday, I expect to see mortgage rates close the week higher than this morning's levels.

Interest rates are based on numerous economic, financial and credit based factors that adjust daily. In addition, lenders can vary on qualification criteria from program to program. If you like the rate today, the safe bet is to lock. Even if rates improve, they wouldn't improve enough in the short term to make you cry about it. But if you are an ardent market bear, and accept the risk of negative mortgage headlines, and believe the economy will just get more bad news next week, and you have the money to risk, you may benefit from floating. Just remember, it always seems more painful to have not locked when you should have as opposed to locking and then watching rates get a little better.

Search today's mortgage rates anonymously. And, as always, you can call me at (508) 471-4144 with any questions about mortgage rates and to discuss your best loan options.