Mortgage Rates Climb

By Chris Vogler chris.vogler@bankofamerica.com
Bank of America Home Loans

Stronger than expected economic data with a hint of higher inflation was negative for mortgage markets last week. Concerns about the level of demand for US securities from China added to the pressure. As a result, mortgage rates ended the week higher.

A number of factors combined during the week to push mortgage rates higher. The recent trend of improving economic data continued this week in the housing sector. The inflation information seemed to show a sharp increase. Later in the week, a Treasury auction for securities which provide protection from inflation showed that investor concerns about future inflation are growing. Investors also worried about a decline in demand for US bonds from China. As the largest foreign holder of US fixed-income securities, any sustained drop in demand from China would have a large impact on US bond markets, including mortgage-backed securities (MBS) markets.

Overall, last week's housing sector data was positive. December Existing Home Sales rose 12% from November. The inventory of unsold existing homes declined 4% to an 8.1-month supply. First-time buyers purchased 33% of existing home sales. December Housing Starts fell from November, but December Building Permits, a leading indicator, rose to the highest level since March. The performance of the housing market varied in different regions, but to see improvement on the national level is encouraging.