The stock market blood bath has been the mortgage industry reprieve. Mortgage rates have been declining rapidly due to the tremendous inflow of investors leaving the market and moving their money into the safe haven of government treasuries.
The concern over the European debt crisis has investors very skittish about remaining in the stock market. Since we are in a world that is so intertwined in business, there is not a single country that can stand on their own if another country or region faces economic challenges.
Only time will tell if the decline in rates will stimulate purchasers to take action. Additionally, in a normal market with a rate decline like this, refinances would increase substantially. However, millions of eligible borrowers have already taken advantage of the previous low rates so nobody is sure how big the pool of remaining homeowners is who can still qualify to refinance.
Housing starts came in higher than expected. Builders are cautiously moving ahead with construction and are showing a willingness to begin building more homes. Many builders still remain concerned about how the termination of the tax credit will impact housing purchases. Unfortunately, we will not really know the answer to this question for at least another 30 days.
One of the driving factors in the mortgage rate decline is that the Producer Price Index and the Consumer Price Index both indicate that inflation is well under control. Both indexes unexpectedly declined in the last month. The bulk of the decline was driven by the decrease in energy costs. (I don't know about you, but I have not seen the decline in energy prices reflected at the gas pump. However, don't worry, in the next quarter the oil companies will show record profits once again and then Congress will call them up to Capitol Hill and slap them on the wrist for not passing any savings on to the consumers. We have seen this before and we will see it again)
Jobless claims came in unexpectedly higher this past week. In addition, last week's numbers were revised up by 2000 which indicates that new claims of unemployment are still a concern. On the bright side of the unemployment front, continuing jobless claims have been declining slowly and gradually. The big question is: "Is the decline due to people getting jobs, or because people are falling off of the unemployment rolls because they are no longer eligible to receive benefits?
After a fairly quiet week of economic reports, next week stands to be the exact opposite. A number of important housing reports are coming out as well as the consumers view on how the economy is doing. Normally I would say that these reports could have a major impact on rates and the stock market however given how everything in the U.S. markets has been primarily been driven by the concerns over Europe, it is hard to guess as to what impact the U.S. reports will have on the markets.
Economic reports on tap for next week are:
• Monday May 24th - Existing Home Sales
• Tuesday May 25th - Case-Shiller Home Value Index & Consumer Confidence
• Wednesday May 26th - New Home Sales
• Thursday May 27th - GDP & Jobless Claims
• Friday May 28th - Consumer Sentiment
Your Mortgage Professional,
JJ Mack
916-517-1800 x300
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