Rate Update November 18, 2008

Mortgage rates are unchanged this morning.

We received a mixed-bag of inflation data this morning with the Labor Department’s Producer Price Index (PPI).  The headline PPI took a record fall in October, tumbling 2.8%.  This was far greater than economists had expected and is a sign that lack of demand and lower energy prices are dragging wholesale prices lower.

However, when you strip out volatile food and energy prices wholesale prices actually increased by .4% in October and showed a robust 4.4% increase on a year-over year basis.  This means that although food and energy prices are falling it may not be dragging down the costs of other goods…..yet.

As we know inflation is the primary factor we follow to determine the future direction of interest rates.  Mortgage-backed bond prices are essentially unchanged this morning reflecting the lack of direction in the PPI report.

We still continue to monitor technical trading patterns.  Specifically, mortgage-backed bond prices continue to hover around the 200-day moving average.  Should they make an acute move higher (pushing rates lower) or lower (pushing rates higher) we will adjust our outlook accordingly.

Current outlook: neutral