Mortgage Outlook

Market Comment
Mortgage bond prices rose last week pushing interest rates slightly lower. Despite the Fed rate increase, there is hope that the continued Fed rate hikes may soon come to an end. For the week, interest rates on government and conventional loans fell by about 1/4 of a discount point.
The producer price index Tuesday will be the most important event this week. Housing starts, income, outlays, leading economic indicators, durable goods orders, consumer sentiment, and new home sales will also be important.
The market closes early Friday in advance of the holiday the following Monday. The shortened trading week and likely thin trading conditions may lead to mortgage interest rate volatility.

Inflation Data
The mortgage bond market received some great news last week. The consumer price index, a major gauge of inflation at the consumer level, fell a remarkable 0.6% in November. This was the largest drop in over 50 years. Signs that inflation remains in check bode well for fixed income securities such as mortgage bonds. The lower than expected consumer price figure also helps reinforce the belief that the Fed is near the end of continually raising rates. However, the consumer price core rate, which excludes volatile food and energy prices, rose 0.2%. While this number remains tame, others point out that the Fed will need more than data from one month before they change their course.
If future data echoes that of November’s consumer price data, then it is very likely mortgage interest rates will remain the same or even push lower. However, there is still worry that the energy markets remain volatile and therefore the threat of inflation still remains. The good news is that mortgage interest rates remain historically favorable for homeowners. It is a great time to take advantage of rates at the current levels.