Wednesday, June 17, 2009

The Labor Department reported this morning that aggregate inflation pressures at the consumer level have fallen to their lowest levels since 1950. On a month-over-month basis the May Consumer Price Index rose a very modest 0.1% while the core rate (a value that excludes the more volatile food and energy components) rose by a matching mortgage market friendly 0.1%.

There is a tremendous amount of slack in every current measure of economic activity - a condition that suggests inflation will not likely be a major threat to the trend trajectory of mortgage interest rates for some time to come. That is not to say other conditions - like major disruptions created by unrelenting government supply issues won't upset the mortgage market apple cart in the near future - but inflation concerns probably won't be a major determinant of mortgage interest rates trends through at least the end of the year.


Interest rates in general are being supported at fractionally lower levels in this morning's early going by the repurchase program of the Federal Reserve. The central bank is an active buyer of Treasury debt obligations maturing in seven- to 10-years. Even though the Fed has burned through a little more than 50% of their original allotment of $300 billion for the direct purchase of Treasury debt - they are still packing enough financial firepower to be considered a supportive influence for the prospects of steady to perhaps fractionally lower mortgage interest rates.


The Mortgage Bankers of America's index of loan applications fell for the fourth consecutive week. The MBA said during the week ended June 12th its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loan requests, fell by 15.8%. The purchase application index dropped by 3.5% while refinance requests were down by 23.3%. Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.50%, down 0.07% from the prior week -- and significantly below the year ago level of 6.57%.