Weekly Mortgage Update 11/12/12
Friday, November 9, 2012 - Article by: Joe Shamie -
Last Week in Review
With QE3 in process and the elections over, the buzzword on Wall Street as we approach 2013 is "Fiscal Cliff." What is the Fiscal Cliff and why is it significant? Essentially as we head into 2013, tax cuts for individuals and various tax breaks for businesses are due to expire, taxes pertaining to President Obama's health care law will begin, spending cuts enacted by Congress as part of the debt ceiling deal of 2011 will go into effect, and long-term jobless benefits will expire. The Congressional Budget Office (CBO) estimates that if all of these items occur, it could take an estimated $600 billion out of the U.S. economy in 2013, pushing the country into a recession.
So what does this mean for home loan rates? The issues surrounding the "Fiscal Cliff" will be talked about from now until the end of 2012 and that spells a lot of market uncertainty, which typically results in investment dollars moving from Stocks into Bonds-thereby improving home loan rates (which are tied to Mortgage Bonds). In addition, continued concerns over the debt crisis in Europe and more riots in Greece will likely keep investors in the safe haven of our Bond markets, which will also benefit home loan rates.
However, a big issue we need to continue to monitor is inflation. One of the goals of QE3 is actually to create inflation. And remember, inflation is the arch enemy of Bonds (and therefore home loan rates) as it reduces the value of fixed investments like Bonds. This is an important issue to watch in the weeks and months ahead.
The bottom line is that now is a great time to consider a home purchase or refinance, as home loan rates remain near historic lows. Let me know if I can answer any questions at all for you or your clients.
The economic data this week begins on Wednesday with the closely watched Retail Sales Report, which measures consumer spending.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.
When you see these Bond prices moving higher, it means home loan rates are improving - and when they are moving lower, home loan rates are getting worse.
To go one step further - a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.
Mortgage Bonds rebounded last week, helping home loan rates remain near record lows. I'll be watching closely to see what happens this week.
Joe Shamie NMLS # 241432
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