This week’s bond market rally dropped mortgage rates back to levels last seen in November, which is not too surprising since the economic environment is now similar to that same time period. The possibility that the debt problems in Europe will spread to larger countries such as Spain and Italy, is causing some investors to shift out of riskier assets and into relatively safer investments such as US government bonds.
On the surface, the Fed stating that they will hold rates low for some time would be appealing and exciting, but rates have been at this level for the past 2 years. Homeowner interest rates have fluctuated between 4.0% and 5.5% during that same span of time. When the Fed talks about rates, those are the rates that they will lend money to banks and businesses, not the consumer. The homeowner rates are driven by Treasury Bonds (and other things, but mainly treasuries). If countries like China stop buying Treasuries, we will then have a much larger issue when it comes to homeowner rates.
Mortgage rates would have improved even more this week if Friday’s Employment report had not exceeded expectations. Against a consensus forecast of 85K, the economy added 117K jobs in July, and the data for May and June was revised higher by 56K. The Unemployment Rate unexpectedly declined from 9.2% from 9.1% in June. Average Hourly Earnings, a proxy for wage growth, increased at a 2.3% annual rate, which was higher than the consensus forecast.
In short, the data solidly surpassed investor expectations in nearly every area. But, the most significant economic data will be Friday’s Retail Sales report, as Retail Sales account for about 70% of economic activity.
*The information contained in this blog was provided by Christian Johnson with Shelter Mortgage. Christian is the preferred lender for the Hewitt & Habgood Realty Group.
