By Brian O’Connell
With dim economic news the norm and a short week due to the Easter holiday, the mortgage market is taking a ‘wait-and-see’ attitude on interest rates.
But, as a host of economic indicators are released this week and the financial markets have had more time to mull over potentially too-good-to-be true earnings, that might change.
Right now, 30-year-mortgage rates are up a few basis points from last week, at 5.03% and 4.97%, respectively, but 15-year mortgages flipped the other way, at 4.75% versus 4.77% last week.
So, while last week was relatively quiet for mortgage rates, depending on the long-ailing banking sector, this week could trigger a real splash in the mortgage market. Wall Street traders don’t know what to make of the current banking climate. Wells Fargo (Stock Quote: WFC) came out with a stunning $3 billion earnings announcement for the quarter – a piece of news that was initially applauded by Wall Street and led to a big run-up in stocks. But when the frenzy subsided, a growing school of thought among both economists and investors found them wondering whether a genuine rebound in the banking sector was premature.
If banks do gather strength, however, alongside the announcement from Goldman Sachs (Stock Quote: GS) that it earned a better-then-anticipated $1.66 billion for the first quarter, then look for rates to pop back up. If not, and there is no shortage of Wall Street analysts who think the global banking crisis is far from over, the mortgage rates should continue to flat-line, or fall even further.
Another key indicator that should impact mortgage rates is the monthly retail sales number. The U.S. Commerce Department recently announced that retail sales fell by 1.1% in March, way below the .03% increase analysts had expected. Given that consumer spending accounts for almost two-thirds of the U.S.’s gross-domestic product, a lower number signals that consumers are still anxious and the economy is still weak.
One more key economic index that impacts mortgage rates, the producer price index (PPI) was revealed April 14. The PPI remains unchanged from last month, signaling that inflation isn’t a threat right now, and a quiet inflationary landscape is usually a harbinger of lower mortgage rates. Analysts had expected the index to rise slightly by 0.1%, but wholesale prices plunged by 1.2% in March.
Between a potentially stronger banking sector, falling consumer spending, and few signs of inflation, it’s a conflicting picture for mortgage rates, which may be just the reason why they’re holding still.
—For more ways to save, spend, invest and borrow, visit MainStreet.com.