WeeklyBasis 05/22/06: Inflation Fears = Lower Rates, For Now

Fixed and ARM rates open this week down about .125% after a volatile week last week. Last Tuesday, rates were up by as much as .375% but when slightly higher-than-expected Consumer and Producer price data came out Tuesday and Wednesday, investors fled stocks for the safety of bonds – this pushed bond prices up and yields (or rates) down. The trend continues this week, which is keeping rates low for now, because demand for bonds holds rates down. But what happens if inflation fears persist is that investors dump stocks AND bonds, because persistent inflation means the Fed may hike rates too much and cause the economy to stagnate. The next big inflation signal comes Friday with April’s Personal Spending report, which measures price fluctuations in personal expenditures. It’s a stat the Fed and the markets watch closely, and could cause rates to rise. Until then however, it looks like a very good rate week.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.5% (6.64% APR)
10/1 ARM: 6.375% (6.515% APR)
5/1 ARM: 6.25% (6.5% APR)

Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 6.625% (6.765% APR)
10/1 ARM: 6.5% (6.64% APR)
5/1 ARM: 6.375% (6.525% APR)