Economic Reports and Inflation (Deflation) have impact on Mortgage Rates

What a historic week this was! No matter your political leanings, it is a time to push for optimism both internally and with people around you. It is also the beginning of the holiday season and that gives us the chance to pause and be thankful for our many blessings, to come together and support a new President elected through a time-tested, constitutional process, and to build optimism and hope even in troubling economic times.

And we are seeing troubling times. As the headline indicates, jobs were the key economic report of the week, and people who are well employed are hanging onto their jobs. Unfortunately, in 2008 nearly 1.2 million jobs have been eliminated and more than half of those happened in the last 3 months. Normally, bad news like this has a favorable impact on mortgage rates and to a lesser degree on stocks. But these are not normal times. The rising unemployment and drop in jobs act as another restraint on rising prices and along with the recession in general represent a significant curb to inflation. Inflation down a long-term interest rates down. This is still true today, but an even more important factor to long-term interest rates is the supply and demand of investors in Mortgage Backed Securities (MBS). While credit continues to thaw, the appetite for MBS is still below what we would consider normal and that is keeping rates from getting as low as they might. That said, there was a huge election day rally that helped mortgage rates early in the week. We are at very good 30 year fixed rates.

For the coming week we have some keen areas of interest. First the stock market: money into and out of the stock market still impacts that supply and demand for MBS. Retail reports have been worse than expected in so many corners so far. And automobile sales are hitting 25 year lows. In 2007 there were 17 million new cars sold in the US and that looks like it will be only 11 million in 2008. Is there any good news for consumers and borrowers to be optimistic about? Yes, oil prices continue to be low opening Monday at $61/bbl and gas prices reflect this. The efforts of OPEC to reduce production to match demand seem to be stabilizing but not driving up gas prices. Inflation really is in check. China announced this morning a nearly $600 billion stimulus package which will have a favorable impact on the global economy. The US dollar continues to be stronger than early in the year, improving the price of oil and most imported products. All of these bring hope for the future and favorable reactions in the markets.

We will keep our eye on actions in the markets. This week there will be 3 significant auctions of Treasury Note refundings. Also, this Friday we will get the retail sales numbers for October and they are already expected to be low. Rates continue to be good and Signet Mortgage has relationships with dozens of quality lenders willing to provide loans. Give us a call and let's make it a great week! - Dave