Mortgage interest rates barely budged on Friday, despite weakness in the bond market, following the release of April’s strong inflation data. The consumer price index for April came in at Friday morning, showing an increase of 0.1% compared to March’s data. The current reading is matching economists’ expectations. As far as core inflation is concerned, which strips out volatile food and energy categories, it rose 0.3% over the prior month and 1.8% on a year-over-year basis. This is just a hair below the Fed’s target level of 2%. The report from the Labor Department revealed that consumer prices were boosted by several factors last month, including increasing housing expenses and medical care costs. Moreover, the index for household furnishings increased 0.5% last month, posting the biggest gain since September 2008.
Friday’s solid inflation figures bolstered speculation among investors that the U.S. central bank may start lifting rates earlier this year, possibly as early as September. The Fed is closely watching the core CPI data, as this figure helps determining when to start raising short-term interest rates. The increase in consumer prices may urge some Fed officials to push for a rate hike earlier this year, when the central bank members’ monthly meeting takes place in mid-June. Investors are concerned, that if inflation increases steadily, that could lead to a rate hike sooner than the market expects. And this would also be disastrous for mortgage rates.
Pricing on U.S. treasury bonds decreased on Friday, following the release of April’s strong inflation data. The yield on the benchmark 10-year treasury note increased to 2.211% from Thursday’s 2.186%. When pricing on bonds fall, their yields increase. The bond market closed earlier on Friday and will remain closed on Monday, due to the Memorial Day holiday.
The strong inflation data also had an impact on mortgage-backed securities (MBS), which most directly influence mortgage interest rates. MBS have lost all their gains from Thursday, after the release of April’s consumer price index report. However, later on, following the Fed Chair’s speech the bond market improved and moved off from their lowest levels.
Fed Chair Janet Yellen reiterated on Friday in a speech at the Providence Chamber of Commerce in Rhode Island, that the U.S. central bank remains on track to lift rates this year, but the hike in short-term interest rates would be most likely gradual. Yellen said, that she expects the economy to rebound in the second quarter, after a weaker performance in the first quarter.
„If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target,” said the Fed Chair. She added that the Fed would need to be „reasonably confident that inflation will move back to 2% over the medium term,” before taking steps to raise interest rates.
Mortgage-finance company, Freddie Mac published its weekly Primary Mortgage Market (PMMS) survey on Thursday. The latest data showed, that after three straight weeks of increases, 30-year fixed mortgages averaged a lower rate this week, in the form of 3.84%. This marks an improvement of 2 basis points compared to figures from a week earlier. The federal agency’s survey also revealed, that the 15-year fixed loan came in at 3.05%, down 2 basis points compared to the prior week’s data.
Bankrate, a consumer financial services compans based in Florida, released its own weekly national mortgage survey on Thursday, which showed that average interest rates inched up this week. As per the company’s findings, 30-year fixed mortgages came in at 4.03% this week, compared with 4.01% last week. 15-year fixed mortgages were slightly higher this week, averaging 3.23%. A week earlier this type of loan was hovering at 3.22%. The interest rate rose on the 5/1 adjustable rate mortgage as well, finishing the week at 3.19%, according to Bankrate.
As we repeatedly said in the last couple of days, if you are averse to risk, you may want to go ahead and lock a rate instead of floating. In case you can handle risk and expect a global economic meltdown, which could ultimately lead to lower mortgage rates, then you may better float. But even that the recent batch of tepid economic data, including weak retails sales and manufacturing reports, have raised doubts that the U.S. central bank may delay its planned rate hike, the majority of economics currently expects that a lift in rates will take place in September. Although, the exact timing is unknown yet, it seems that the Fed is determined to raise rates this year and once that happens mortgage rates will rise accordingly.
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