Mortgage rates fall on mixed inflation news

If there's one thing that mortgage shoppers like, it's news of a weak economy. They got it toward the end of last week, and mortgage rates fell. They reversed course, but not by much, after two reports this week delivered conflicting news about inflation.

The slip in rates happened after the Dow Jones Industrial Average fell more than 100 points three days in a row from April 13 through 15. On the 15th, a Friday, Wall Street investors had seen enough. They didn't want to worry about plunging stock prices all weekend, so they pulled money out of stocks and bought relatively safer bonds, including mortgage-backed securities and U.S. Treasuries. Increased demand for these securities drove down the yields on the bonds, and mortgage rates followed.

The benchmark 30-year fixed-rate mortgage fell 9 basis points to 5.86 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.30 discount and origination points. One year ago, the mortgage index was 6.06 percent.

The 15-year fixed-rate mortgage fell 13 basis points to 5.42 percent. The 5/1 adjustable-rate mortgage fell 10 basis points to 5.31 percent, and the one-year ARM fell 8 basis points to 4.61 percent.

Investors returned to Wall Street on Monday and bought stocks, sending interest rates up again, if only slightly. Then came back-to-back inflation reports. Long-term interest rates, such as those for mortgages, are highly responsive to inflation signals. But these signals were staticky.

Tuesday brought the Producer Price Index for March. It showed that overall wholesale prices rose 0.7 percent last month, a bigger-than-expected jump. Excluding the volatile food and energy sectors, wholesale prices rose just 0.1 percent in March. That was below expectations. Bond yields and mortgage rates fell further.

"The prices of many materials, including most chemicals and metals, are really jumping," economist Joel Naroff said in a note to investors. "Manufacturers are facing growing input price problems. Whether they can pass those costs through, though, is another story."

He was humming a different ditty the next day, after the Consumer Price Index for March was released. It showed that overall consumer prices rose sharply at 0.6 percent. The core CPI, which excludes food and energy, was up 0.4 percent. "No matter what the Fed wants to tell us, inflation pressures are building," Naroff said in another note to investors.

The inflation information was enough to attract the attention of bond markets and mortgage bankers. Bond yields and mortgage rates rose. But this was a day after the same yields and rates fell, so they ended up essentially where they had been before either set of March inflation data had been released.