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Low consumer inflation in April bodes well for mortgage rates

By Holden Lewis · Bankrate.com
Wednesday, May 19, 2010
Posted: 9 am ET

Inflation was practically nonexistent in April, according to the Consumer Price Index. That should spell good news for mortgage rates, which already are benefiting from turmoil in Europe.

The core CPI, which excludes food and energy, was unchanged in April. The overall CPI showed prices falling 0.1 percent because of substantial declines in the prices of gasoline and natural gas. Falling energy prices were balanced out by rising prices for meat, poultry, fish and eggs. I guess my low-carb breakfasts have become pricier.

Mortgage markets will look kindly upon the news of low inflation in April, even as pessimists complain that high inflation is right around the corner because of deficit spending from governments.

That brings us to the most important development of this week so far: capital flight from Europe. The euro fell to a four-year low against the dollar yesterday, after Germany banned short-selling of stocks and bonds. It appears that investors moved their money across the Atlantic to our shores. As a result, yields on mortgage bonds and Treasury notes fell. Mortgage rates felt downward pressure, too.

I'm about to cast my vote for this week's Rate Trend Index, and I'm torn. It's hard to believe that, with rates this low, they won't rise soon. On the other hand, there's low inflation here and there's fear in Europe. I guess rates are likely to remain about the same over the coming week, or even drop further. But I probably would lock my rate, anyway, if I were in the position of pondering whether to lock or float. Just to be safe and ensure getting a low rate.

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6 Comments
Holden Lewis
May 21, 2010 at 8:40 am

Loan modifications aren't dependent on current interest rates. The borrower's new rate depends upon debt-to-income ratio.

Now, if you're asking about refinancing, the answer to your question is no. No lender is going to delay a refi in hopes that rates will rise. Loan officers and mortgage brokers are hungry right now. Their daughters need prom dresses, and their pantries have to be stocked.

SWC
May 20, 2010 at 6:10 pm

Due to this rate reduction, is it more likely that the federal loan remodifications will be expedited? Or will they take a ride for a while and wait on the rates to go back up? Does anyone know the percentage of househoulds that is actually benefitting from loan remodifications?
Have a blessed day
SWC

Holden Lewis
May 19, 2010 at 2:23 pm

I don't know of a publicly accessible website that lets us track rates as they change during the day, but there is a way to track indicators of rates.

You can track Freddie Mac's required net yields. Final rates are based upon these yields, so when they move up or down, rates are doing the same. I track the 30-year, 30-day delivery rate.

There's also a page at SIFMA that lets you track mortgage bond prices. The second gold box on the page, labeled FNMA, indicates Fannie Mae bond prices. I keep track of the 4.5% coupon, 30 years. If you see rapid increases in those bond prices, rates should be falling, and vice versa.

The Freddie RNY page is friendlier and, I think, more useful to those of us who don't work in the mortgage securities markets.

borrower81
May 19, 2010 at 1:45 pm

Holden-
Aside from Bankrate's mortgage rates index, is there any way to track rates hour-by-hour over the course of the day? Thanks in advance.

Holden Lewis
May 19, 2010 at 11:24 am

Too much beer, or English as a second language? Inquiring minds want to know.

Loans
May 19, 2010 at 10:53 am

The most burning processing of this week so far: uppercase steps from Continent. The euro cut to a four-year low against the bill yesterday, after Germany illegal short-selling of stocks and bonds. It appears that investors captive their money crossways the Ocean to our shores. As a ending, yields on mortgage bonds and Treasury notes vanish. Mortgage rates mat descending pressing, too.