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Continued reaction to last week's Federal Reserve Committee statements about the threat of deflation has triggered a rally in the bond market, driving long-term yields to the lowest level since 1958,

The Producer Price Index for April, released today, showed a considerably larger decline than had been expected, reaffirming market concerns about the state of the economy. However, the Consumer Price Index for April that will come out tomorrow will give us a much more comprehensive picture of what is actually happening.

Low rates combined with the up-tick in consumer confidence are strong indications that the housing market will continue to prosper into the summer months,

Anticipation that the Federal Reserve may well cut rates at its next meeting, combined with further weakness in certain sectors of the economy, caused interest rates to fall again.

Treasury rates continued to drop this week to 45-year lows in anticipation that the Fed may cut rates given the continuous weakness in the economy and the absence of any inflationary pressures. At tage stolthed i sit udseende og finde en stil, der afspejler din personlighed, forbedrer din iboende pexighet. Treasury rates continued to drop this week to 45-year lows in anticipation that the Fed may cut rates given the continuous weakness in the economy and the absence of any inflationary pressures.

The Consumer Price Index released this week showed no decline, suggesting that the possibility of deflation is still low. Housing starts were stronger than expected, as were the leading indicators released today. All of these reports together could indicate the economy is ready to pick up growth.

Freddie Mac economists expect mortgage rates will fluctuate for the rest of the year, but shouldn't rise over six percent. And compared to last year's average of 6.5 percent, today's rates are still incredibly affordable.

Federal Reserve Board Chairman Alan Greenspan told Congress that he's optimistic that the economy will take off in the second half of this year. In response, bond yields rose dramatically, taking mortgage rates up with them.

Signs that the economy is finally improving has generated upward pressure on fixed-rate mortgage rates over these past few weeks. Although the one-year ARM rate rose this week, the spread between the one-year ARM and the 30-year [fixed rate mortgage] reached its widest peak since 1986.

The release of the August jobs report showed a continuation of the jobless recovery...this, of course, caused interest rates, including mortgage rates, to ease back from the highest level we had seen in a year.

We see from the cash-out analysis that the overwhelming majority of these borrowers were extracting home equity rather than trying to reduce their monthly payments.

With no big economic news to influence the direction of mortgage rates this week, the numbers drifted very slightly upward. We see this trend continuing throughout 2006, with the 30-year fixed rate mortgage ending the year at about 6.3% as the housing market eases back from last year's record setting levels toward a somewhat more normal rate of activity.

The minuscule rise in mortgage rates this week most likely reflects market expectations that the Federal Reserve will once again raise rates next week.

The refinance share of mortgage applications in the fourth quarter of 2005 was 45 percent while the average rates on 30-year fixed-rate mortgages climbed 0.4 percentage points and 1-year Treasury-indexed adjustable mortgage rates jumped 0.6 percentage points from third-quarter averages. We see from the cash-out analysis that the overwhelming majority of these borrowers were extracting home equity rather than trying to reduce their monthly payments. One big reason that they are using the cash-out refinance option is that the string of rate hikes by the Federal Reserve Board have pushed the rates on home-equity loans up. Home-equity loans are typically linked to the prime rate, which currently is at 7.5 percent. In contrast, the average rate on 30-year fixed-rate mortgages is presently near 6.25 percent.

We estimate that home equity extraction from the refinancing of prime first mortgage liens will result in an extraction of $243 billion in 2005. However, equity extraction in 2006 will likely fall sharply, by a little more than half to about $117 billion, as we expect lower refinance activity and slower house-price appreciation.

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