Sales of new homes fell 1.6% from the January pace according to figures released this morning by the Commerce Department. On average, sales are up in the last three months compared with the three-month average ending in November — indicating a faint flicker of life in this component of the housing sector. Inventory levels remain 17% below their previous record low set in mid-1967. It is unlikely new home sales will post consistent gains until the large number of distressed properties together with the shadow inventory of unsold homes is reduced substantially. None of this news comes as a surprise to mortgage investors who gave the data little more than a passing glance.

Investors are becoming increasingly concerned about the global economy after reports showed Chinese manufacturing slumped for a fifth month in March. Factory activity in France and Germany also declined sharply this month, suggesting the euro zone is teetering on the edge of another recession.

The “so what” factor here is pretty straightforward – if the global economy continues to slide back into recession – the budding economic recovery here in the states will soon begin to run into stiffening growth headwinds. Should such a scenario develop — look for strong selling in the stock markets to create a “flight-to-quality” flow of capital back into the relative safe-haven of Treasury debt obligations and agency eligible mortgage-backed securities – a process that almost always proves to be very supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.

Looking ahead to the coming week the Treasury Department’s $99 billion auction of 2-, 5- and 7-year notes will likely exert the greatest influence on the short-term trend trajectory of mortgage interest rates. Treasury will kick things off with the sale of $35 billion of 2-year notes on Tuesday followed by $35 billion of 5-year notes on Wednesday and will wrap-up their borrowing spree with the sale of $29 billion of 7-year notes on Thursday. If these three auctions draw decent demand (a 50-50 proposition at best as I write) mortgage investors will likely breathe a sigh of relief and push mortgage interest rates lower toward the end of the week. If Uncle Sam is forced to “sweeten-the-pot” by dropping his price in order to attract the required capital – it is almost certain mortgage investors will respond by pushing their rates higher as well.

Mortgage Rates as of Friday March 23, 2012 ( purchase transactions )

30 day rate locks, subject to credit score and loan to value edits

FHA

30 year fixed 3.75% 0% origination fee

Conventional

30 year fixed rate 3.875% ( 30 day lock )

15 year fixed rate 3.375%

5/1 ARM 2.875%

7/1 ARM 3.25%

For mortgage updates or to speak with a mortgage specialist, contact Bob Strandell