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Mortgage rates creep up

Mortgage rates and yields on U.S. Treasury securities edged higher this week due to concerns about interest-rate hikes, inflation and some over-the-top economic news. Apprehen-sion regarding the monetary policies of newly appointed Fed chief Ben Bernanke also kept buyers away, but his testimony before Congress indicated that he would continue on the path set by Alan Greenspan. This took pressure off bonds but sellers outweighed buyers, sending prices down and yields, which move in the opposite direction, up. This forced mortgage lenders, who base their rates on yields, to raise them on many products. The producer price index gave Treasuries a boost in spite of the fact that the index edged up to 0.3 per cent, and the core rose to 0.4 percent. Traders felt this was not a threat on the inflation front. A weak consumer sentiment report from the University of Michigan also boosted Treasuries.

Retail sales in January leapt to their highest level since May 2004, rising 2.4 percent. Strong demand for autos and gasoline led the surge, but when autos were excluded, sales climbed by an impressive 2.2 percent. These numbers worried bond traders who fear economic growth will need to be reined in with rate hikes.

Housing starts and building permits for January also grabbed the attention of traders, with starts blowing past estimates. They shot up 15.5 percent - the highest monthly increase since March 1973. Starts came in at an annualized rate of 2.28 million units, while building permits climbed to 2.22 million -- a 6.8 percent increase.

First-time unemployment claims, for the week ended Feb. 11, shot up to 297,000 - an increase of 19,000 over the previous week. The four-week average, which smoothes volatility, rose to 283,000. Industrial production in January slipped 0.2 percent, but the Philadelphia Fed index on February manufacturing conditions jumped to 15.4, while prices paid dropped sharply. A similar index from New York state showed a slight decline.

Higher rates may have stifled mortgage applications for the week ended Feb. 10. Applications to purchase plunged 7.9 percent, while refis were down 6.5 percent, according to the Mortgage Bankers Association. The rate on the 30-year fixed-rate mortgage (based on zero discount points) is now above 6 percent, while the 15-year fixed-rate mortgage edged up to 5.625 percent. The rate on the five-year, adjustable-rate mortgage climbed to just below 5.625 percent.

A holiday-shortened week features little in the way of economic news, but there are a couple of market movers on tap. The January consumer price index, which monitors inflation at the retail level, will be key for the financial markets. Durable goods orders for January could also ruffle investors as they provide an important look at manufacturing. The minutes of the Jan. 31 meeting of the Federal Open Market Committee also will be released, and if it contains new information on inflation or interest rates, the financial markets could react.

If results come in on target and no surprises occur, mortgage rates should hold fairly steady into next week.

Carolyn Siegel

carolyn@interest.com