Volatility and then Little Change in Mortgage Rates last week Roger Odoardi It was a volatile week for mortgage rates. Troubles in smaller European nations, mixed results for the Treasury auctions, and tame inflation data caused significant movements in rates during the week. These influences offset each other, though, and mortgage rates ended the week nearly unchanged. Although the Consumer Price Index (CPI) inflation data came in slightly higher than expected on Friday, mortgage rates improved after the news. April CPI increased 3.2% from one year ago, which was the highest annual rate in two and one-half years. Core CPI, which excludes food and energy, increased at a 1.3% annual rate. While Core CPI remained well below the Fed’s target range around 2.0%, it was up from 1.2% last month and 0.8% at the end of last year, meaning that the trend has clearly been moving higher. Inflation is negative for mortgage rates, so the question is why mortgage rates remain at the lowest levels of the year despite rising inflation data. The likely answer is that investors expect that the majority of the increase in inflation has already taken place. Fed officials have maintained that they expect the inflationary effects of higher oil prices to be “transitory”, and the recent drop in oil prices has supported the Fed’s position. One year ago, oil prices were around $70 per barrel, but they averaged about $110 per barrel in April, an increase of more than 50%. So far in May, oil prices have averaged about $100 per barrel, and investors don’t expect that oil prices will rise 50% over the next year. Meanwhile, wage growth, a major factor in inflation levels, has been minimal in recent months. For these reasons, current inflation expectations remain relatively low. Also Notable: • Weekly Jobless Claims fell sharply from the highest level since August last week • April Retail Sales increased 0.5% from March, showing steady improvement • Plosser stated that inflation and inflation expectations will determine future Fed policy • S&P again downgraded its rating for Greece Average 30 yr fixed rate: Last week: -0.10% This week: 0.00% Stocks (weekly): Dow: 12,700 -50 NASDAQ: 2,850 -25 Week Ahead Next week, Industrial Production, an important indicator of economic growth, will come out on Tuesday. Housing Starts will also be released on Tuesday. The FOMC Minutes from the April 27 Fed meeting will come out on Wednesday. These detailed notes offer additional insight into the Fed’s decisions. Existing Home Sales will be released on Thursday. Empire State, Philly Fed, and Leading indicators will round out the schedule. To learn more about news impacting interest rates and mortgage markets, go to www.mbsquoteline.com To learn more about the newsletter, please call 800-627-1077 All material Copyright © Ress No. 1, LTD and may not be reproduced without permission. Roger Odoardi Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.