Rates are STILL at an all time LOW!!!

The weekly reports of mortgage rates hitting new record lows is starting to become routine.  It seems that every time someone says “that rates just can’t go any lower” that is exactly what seems to happen.  Many people are asking me “why does this keep happening?”  The answer is a simple one.  IT IS THE ECONOMY.

The instability in the U.S. economy, which appears to becoming more and more of a concern, has many investors fearful about the stock market and they just continue to place their money into government securities which drives down the yields.

When you add the financial crisis in Europe, which is nowhere near any type of resolution, you have a significant additional force playing havoc in the markets.  By now it is clear that if any major negative financial news comes out of Europe, the U.S. market tank.  In fact, it is not just the U.S. markets, it is the world markets.  These days it is not possible for any country to remain insulated from negative financial circumstances occurring in any developed country because everyone is so connected to each other.  To add more salt to the wounds, now it appears that China, which is always a major force for growth, is having their own signs of economic slowdown.

Let me get back to mortgage rates for just a moment.  One thing that is opening people’s eyes is that even though a new record low has been hit for mortgage rates, last week the MBA reported that refinance applications declined by 3.0%.  We need to wait and see if this is a sign that the pool of people left to refinance is drying up, or is the drop simply because of the holiday week and many people taking vacation.

The latest minutes for the June 19-20 FOMC reiterated that the Fed will take action “IF” it is necessary.  Many investors had been hoping for stronger language from the Fed that they are getting ready to take more action by providing another round of stimulus.

For weeks investors have been betting on the Fed announcing new monetary action to help the struggling economy.  However in every single speech given by Fed Chairman Bernake over the last couple of months, he has not given any indication that there is another round of stimulus coming.  Why investors are surprised to see in the latest release of the Fed minutes that there is no new stimulus discussion is beyond reason, but hey what do I know.

Next week is a much busier week for economic data, so the likely hood that we may see more radical moves in the stock indices is greater.  Housing is coming into focus with Housing Starts being reported on Wednesday and Existing Home Sales coming out on Wednesday.  Most analysts surveyed do not expect any significant changes in these numbers from the prior months.  The upside is that the last few readings have shown that the housing market has been improving very slowly and continues to be in much better shape than one year ago.

First Time Jobless Claims were reported Thursday morning at the lowest number in 4 years.  The improvement in the numbers is welcome news for the struggling labor markets.  Many are hopeful that this is a trend rather than simply due to the fact that last week was the July 4^th Holiday which fell right in the middle of the week and many people were on vacation.

JJ Mack