Potential home buyers and refinancers who stay on the sidelines first quarter 2009 while rates are good, just may be singing the blues this late spring and summer.
Home loan rates are very attractive right now; it may be quite a different picture heading into summer as some inflationary factors will probably come into play. As we approach the summer driving season oil prices may be on the rise, some of the economic stimulus might begin to take effect, corporate cost-cutting measures could start to bear fruit, AND, very importantly, the Fed may no longer be buying Mortgage Bonds. All these factors add up to the real potential of significantly higher interest rates this summer.
So why would bond traders be nervous now, with no hint of inflation in the current market? Comments from Fed Governor Frederic Mishkin last week may provide some insight: “inflation could come to the forefront, given all of the government programs” and “once the economy recovers, liquidity must be taken out of the markets” …. meaning the Fed may need to rapidly hike rates down the road, to control the potential of inflation.
Renewed fears of the deepening worldwide economic slump put heavy selling pressure on global stocks last week. And this was despite the good news from better than expected earnings from IBM and Google, and with GE meeting their earnings expectations. Sometimes the downward pressure on stocks can benefit bonds, but the mention of inflation was felt – with home loans ending the week around .25% higher than where they began!
Jan 26-30th Watch report
The Fed will be holding their regularly scheduled meetings on Tuesday and Wednesday. And Wednesday, the Policy Statement is issued along with a decision regarding the Fed Funds rate.
Other factors influencing the market include the Gross Domestic Report to be released on Friday. The GDP is the broadest measure of economic activity, and given the state of our economy, a negative one might not be that much of a surprise. Thursday’s Durable Goods report will give us a look at consumer and business buying behavior. The housing market reports come on Monday, with Existing Home Sales numbers and on Thursday, reporting on New Home Sales.
NOTE: The arch enemy of bonds and home loan rates is inflation, and even the mention of it can have negative ramifications.
Reality vs possibility: don’t buy into the ‘maybe it’ll be lower later” view, take the great rate available now, save yourself those hard earned dollars and don’t get caught singing the blues ‘cause you waited for the rates to “bottom out”.
Please call me or email me at email@example.com or 913-642-3334 for insight about the benefits of acting today, and not waiting for what may never come.