Mortgage Rate Update September 29, 2011

Mortgage rates are mostly unchanged this morning.

Last week mortgage rates achieved new all-time lows in response to fear over the European debt crisis and a weak outlook for the US economic recovery.  It stands to reason then that rates would reverse back higher in response to a shift in sentiment over these two issues.

Today we got more news that may ultimately work against mortgage rates.  First off, across the pond Germany’s Parliament voted to approve an expansion of the EU bailout fund giving investors optimism over the end game there.  However, Germany’s Parliament also voted in a veto provision over future expansion of the fund.  On the same subject, a recent survey by Bloomberg showed that 93% of analysts believe that despite Europe’s efforts Greece is likely to default in the future.  As I’ve been stating for weeks: Greece will default.  The question is how far the dominoes will fall.  If fear grows over the magnitude of collateral damage then rates here at home will fall and vice versa.

The economic news out today was also better than expected which doesn’t bode well for rates.  Weekly jobless claims declined by 37,000 last week to the lowest level since April.  Also, the Commerce Department revised higher the 2nd quarter economic growth rate from 1.0% to 1.3% which was better than expected.  Lastly, the Fed’s preferred inflation measure was shown to increase by 2.3% instead of the previously reported 2.2% in Q2.  Inflation grew at the fastest rate in 3 years.  Inflation is the primary driver of long-term interest rates so this news is not rate friendly.

Rates are fairly flat today but that is because they moved higher over the previous 4 days.  The 10yr Treasury note is currently trading at 2.02%.  Should it close above the 2.0% level I would expect rates to move higher in the coming days.

Rates may reverse course and move lower form here but there is more to lose than to gain so I will maintain a locking position.

Current Outlook:  locking bias