For all the criticism leveled at Congress over its inability to come to any kind of lasting fiscal agreement, there may in fact be a positive side to the story that goes under-reported. Don’t get me wrong I am not a cheerleader for low mortgage rates above all else. In fact, I would gladly cheer higher rates in exchange for a stronger economy that is producing jobs and increasing incomes. Yet, the benefit of low mortgage rates, as a tool for consumers to repair damaged financial positions is powerful and is a result of the political dysfunction in Washington above all else.
I know Ground Hog Day doesn’t occur for several weeks but today is shaping up to remind me of the 1993 Comedy by the same name that starred Bill Murray and Andie McDowell. As you film aficionados recall, a TV weatherman played by Murray visits Punxsutawney, Pennsylvania to cover the annual Ground Hog Day spectacle. According to legend, if Punxsutawney Phil sees his shadow, there will be six more weeks of winter weather. If he does not see his shadow, there will be an early spring. In the movie Bill Murray’s character somehow gets caught in a time loop and every day becomes an exact replica of the day before…in his case…Ground Hog Day. While today in the markets is not an exact replica of yesterday and the day before, it is a little too close for comfort for those wanting mortgage rates to remain low.
Thursdays are usually the day each week that we focus on the job market. Each Thursday at 8:30 AM ET the US Department of Labor releases the results of its survey of new applicants for first-time state unemployment benefits. Today was no different. The report was issued and it showed some surprising results, yet the markets have completely ignored them. Why? The answer is economic news about the two other major economic powers: China and the European Union.
Last week was filled with intrigue and a substantial amount of economic data. This week is filled with speculation and an almost complete lack of economic data. Both environments are good breeding grounds for volatility in the markets and for interest rates. Nevertheless, it is always important to remember that traders want to see activity and trends no matter how well supported by facts since they make money on the trades of investment products rather than the direction of the products price movements.
When I was 14 I had the unfortunate experience of being near where a bolt of lightning hit a tree. I wasn’t standing under the tree mind you, I was smarter than that. I was inside a cabin lying on the bare metal springs of a bunk bead on the first day of camp. The unfortunate proximity and position resulted in a brief (and bumpy) experience of human flight. Yesterday mortgage rates, while minding their own business seemingly out of the storm, received a jolt that sent them flying. This jolt came from the usually tame minutes of the previous meeting of the Federal Reserve’s Open Market Committee.
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Well the most written about topic of the last six months in this space has been the fiscal cliff and its impact on mortgage rates. Now that the imminent drop has been averted, what does it mean for the direction of mortgage rates? The truth is that of all the scenarios I have speculated about the deal actually passed was not one of them.
Anybody feel like going over a cliff? Barring a last minute flurry of common-sense and public-mindedness, we are headed for a fall. If the President and congressional leaders cannot agree on a deal before next Tuesday, our nation will face the prospect of an unnecessary, man-made economic disaster. The next few days will tell us if our current crop of leaders are statesmen and women or simply the political hacks we suspect them to be. Mortgage rates and housing will not be immune to their action.
Mortgage rates are caught in a balancing act between all-time lows and meaningfully higher levels this holiday season. Economic data released over the past few weeks suggest that rates should be heading higher, yet the uncertainty that surrounds the fiscal negotiations in Washington and its impact on the US economy have kept rates near historic lows. One way or the other the next week to 10 days is likely to see rates move toward the naughty list or stay on the nice list.
Mortgage rates are improving again today after a dramatic failure by Speaker of the House John Boehner related to the fiscal cliff negotiations he is having with president Obama. Just a few days ago we were looking at higher rates and the prospects of even higher rates as a deal to avert the fiscal cliff seemed likely. However, with the “big fail” of Speaker Boehner’s “Plan B” proposal a deal seems unlikely anytime soon.
Mortgage rates this morning are currently holding at improved levels from earlier in the week when optimism regarding the fiscal cliff negotiations pushed them higher. Today was a surprising GDP report that is garnering the most attention in the markets. Making sense of this unprecedented—in my recollection—report will be the challenge of the day for analysts and investors.