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Mortgage rates edge downward

Mortgage rates edged downward this week as investors sold stocks and put their money in risk-free U.S. Treasury securities. Bond prices rose and yields, which move in the opposite direction of prices, fell. Investors fled equities in domestic and foreign markets on the fear that rising commodity prices would dent the global economic. Mortgage rates, which move with Treasury yields, followed the trend, but moves were not substantial. Economic news supported bonds, as it showed that while the economy is healthy, it is not on a path to runaway inflation. Housing sales in April were mixed, and well off last year's record-setting numbers. New home sales rose by a stronger-than-expected 4.9 percent to an annual rate of 1.2 million units. Although this is the second straight month of increases - after two declines - on a year-over-year basis, sales are down 5.7 percent.

Existing home sales fell 2 percent to an annual rate of 6.75 million units, but inventories rose 6.8 percent reflecting a six-month supply. Sales fell across the country due largely to rising mortgage rates, but the median sales price climbed to $223,000 -- up 4.2 percent from last year.

The first revision of first-quarter gross domestic product fell short of expectations, rising to 5.3 percent from 4.8 percent, while consumer spending - closely watched by the Fed -- edged down. The report calmed fears of inflation and raised hope that the Fed rate-hike program would pause. In a separate report, April orders for durable goods, big-ticket items meant to last more than three years, fell 4.8 percent due to weak aircraft orders.

First-time unemployment claims fell by 40,000 to 329,000for the week ended May 20 now that government layoffs in Puerto Rico have ended. The closely watched four-week moving average, which smoothes volatility, hit 337,000, its highest level since October. In a separate report, personal income rose 0.5 percent, while spending was up 0.6%. Core inflation, an inflation indicator, edged up 0.2 percent -- or 2.1 percent year over year. This is just above the Fed “comfort zone” of 2 percent, and Treasuries were unfazed.

The University of Michigan's consumer sentiment survey came in at 79.1, up a hair from the preliminary reading, but down from the final reading of 87.4 posted in April. Mortgage applications fell during the week ended May 19. According to the Mortgage Bankers Association, purchase applications were down 7.1 percent, while refinances were off by 4.3 percent.

Mortgage applications fell during the week ended May 19. According to the Mortgage Bankers Association, purchase applications were down 7.1 percent, while refinances were off by 4.3 percent. The 30-year fixed-rate mortgage (based on zero discount points) fell to 6.69 percent, while the 15-year fixed-rate mortgage edged down to 6.31 percent. The rate on the five-year, adjustable-rate mortgage slid to 6.27 percent.

While the holiday-shortened four-day week will feature reports on consumer confidence and manufacturing, the employment report for May - due out Friday -- will be in focus all week. Tepid reports on the manufacturing sector could allay fears about strong economic growth, but jobs will be the big factor. If there were a significant increase in U.S. payrolls, fears of inflation would rise and put upward pressure on Treasury yields, which could push mortgage rates higher. A benign employment report would likely have the opposite effect.