Mortgage Rate Update July 15, 2011

Mortgage rates are unchanged this morning.

The economic calendar was packed full of releases this morning.  I’ll just cover the highlights in this post but you can see a run down HERE.

Inflation is the primary driver of mortgage rates and this morning’s read on the Consumer Price Index (CPI) was reported in line with expectations (more or less).  When you strip out volatile food & energy prices the “Core” inflation rate grew at a 1.6% annualized pace.

A separate report released by the University of Michigan showed that consumer sentiment is currently  at the lowest level since March 2009.  Bad news for the economy is good news for mortgage rates so this is helping to support bond prices.

There has been a lot of media coverage regarding the debt ceiling debate in DC.  A default by the US government would be catastrophic for the financial markets so it is highly unlikely that we’ll reach that point.  However, it is increasingly clear that our two major political parties cannot find common ground to get this situation resolved.  The Demo’s appear willing to compromise on spending cuts but the Republicans are not willing to compromise on tax revenues.  My guess is we get a band-aid solution and they’ll kick the can down the road.

Once the US figures out how to avoid default attention will focus back on the Euro-zone which is still in shambles.  In the long-term it would be worth it to float but in the near-term I expect rates to hold steady.

Current Outlook:  neutral with long-term floating bias