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Mortgage Rate Update 5-2/2006
The benchmark 15-year fixed-rate mortgage rose 4 basis points to 6.27 percent. The
benchmark 5/1 adjustable-rate mortgage increased 12 basis points to 6.31 percent.
If you're shopping for real estate. Get in line - lots of other people are shopping too.
That's partly what bugs bond traders. Demand for housing remains stronger than expected,
and that implies that sales of fuel, appliances, furniture, and other goods and services
will also be better than expected. That could cause prices to rise, and long-term mortgage
rates are sensitive to bond traders' inflation expectations.
Consumers polling shows confidence. The Conference Board's consumer sentiment index rose
to 109.6 this month - the highest since May 2002.
Economists and the bond market had expected the consumer sentiment index to fall in April,
not for it to rise to a four-year high.
Likewise, they thought that home resales had declined in March. Instead, the National
Association of Realtors reported that used-home sales nudged upward in March to an annual
rate of 6.92 million units. It wasn't much of an increase over February's annual rate of
6.9 million units, but it was enough for investors to take note.
Rates on 15- and 30-year mortgages tend to move up and down with 10-year Treasury
notes. After the consumer confidence and used-home sales reports were released
Tuesday morning, the 10-year yield jumped 8 basis points, to 5.07 percent - the highest it
had finished the day since June 10, 2002.
Bond bulls are investors who expected softer home sales numbers and, therefore, lower bond
yields, resulting in lower interest rates. (They're bulls because when bond yields drop,
bond prices rise.)
"The bulls basically hoped for a number showing housing is eroding. As long as jobs
are strong and as long as interest rates are low this isn't going to change."
Mortgage rates were rising in March, although they were still attractively low by
historical standards. Maybe the combination of low but rising rates made procrastinators
jump off the fence and make offers on houses.
As far as the higher-than-expected consumer sentiment, people have jobs, and jobs
seem to be reasonably plentiful. With the U.S. population growing by about 3 million a
year, and with the job market improving, many expect real estate to remain strong for a
long time.
Wednesday's release of the report on new home sales in March cemented this week's rise in
mortgage rates. Economist and investors had expected the report to show that new homes
were sold at an annual rate of 1.1 million last month, but the number turned out 10
percent higher than that, at an annual rate of 1.213 million.
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