Rates Up .125%: Inflation Fear Outweighs Awful U.S. Home Sales & Europe Debt Panic

Thirty-year rates are up .125% since Friday to 4.875% with zero points. Rates for loans above $417,000 and condos are higher. Weak U.S. new home sales data and Europe’s ongoing debt crisis have helped U.S. mortgage bonds rally in the past year, pushing rates down, but inflation is becoming the primary concern for bonds, which is why mortgage bonds have net sold this week and rates are up.

The latest two inflation inputs were: (1) yesterday’s Richmond Fed report showing that Atlantic region manufacturing increased for the sixth straight month, and manufacturers anticipate 4.31% price increases, and (2) today’s stern inflation warning from Dallas Fed president Richard Fisher. He told Reuters that the Fed will have to be “extremely wary and vigilant” that spiking oil prices don’t become a permanent part of U.S. inflation. These factors are causing rates to rise despite awful new home sales in the U.S. and renewed debt panic in Europe, both of which are highlighted below.

February sales of new single family houses were the lowest on record at 250,000, which is down 16.9% from January and down 28% from February 2010, with an average sales price of $246,000. The seasonally adjusted estimate of new houses for sale was 186,000, representing an 8.9 month supply at current sales rate. Europe’s bailout plan for debt-strapped Eurozone nations announced March 12 was perceived as positive, but now Spain and Portugal are on the ropes again because the bailout plan only helps with new debt, not existing debt.