|A tale of three stories. That’s a great way to describe last weeks news, as a string of positive economic reports, news out of Europe, and hints that inflation is heating up all worked together to impact Bonds and home loan rates. Here are the details!
There was a double dose of good news on the housing front, as Housing Starts surged 15% in September to its fastest pace in more than four years. Building Permits, a sign of future construction, increased by more than 11%, also above expectations. These are great signs that the housing sector’s recovery is gaining some momentum. Also last week, Retail Sales and the Philadelphia Fed Index, which measures manufacturing in that region, were both reported better than expected. But there was some disappointing news on the manufacturing front, as the New York State Manufacturing Report was lower than expected.
Remember, strong economic news often causes money to flow out of Bonds and into Stocks, as investors hope to take advantage of gains. That’s partly what caused Bonds (including Mortgage Bonds, to which home loan rates are tied) to worsen last week.
Also weighing on Bonds and home loan rates was the news that both the headline Consumer Price Index (CPI) and the more closely watched Core CPI (which strips out volatile food and energy prices) were reported a bit hotter than expected. One of the main goals of the Feds latest round of Bond buying (known as Quantitative Easing or QE3) is to avoid deflation and actually create inflation. And as we saw last week, any hints of inflation can spook Bond investors causing both Bonds and home loan rates to worsen as inflation can reduce the value of fixed investments like Bonds.
The drama in Europe is another key story to monitor. No news was bad news on the Europe front last week, as leaders exited a summit in Brussels without concrete measures and details to tackle the debt crisis, now into its fourth year.
So what does all of this mean for home loan rates? The continued drama in Europe should benefit our Bond markets (and thus home loan rates), as investors continue to see our bonds as a safe haven for their money. However, if inflation continues to heat up, Bonds and home loan rates could worsen as a result.
The bottom line is that home loan rates remain near historic lows, making now a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.
original article from Stuart Brown from the Valley Mortgage Group