Current Interest Rates – Week of 10/1/12

Stocks suffer their worst weekly loss in over a year.  Home loan interest rates reach their lowest levels ever, but where can they go from here?

What happened with interest rates last week?

The stock market finally ran out of steam last week as the worst weekly loss since last June was handed to investors.  Fortunately for home buyers and someone thinking about refinancing, as stocks are sold, investors will often shift their money to mortgage bonds and drive our mortgage rates lower.

Mortgage backed securities put on quite a show as they rocketed to new historic highs as the expense of the stock sell-off.  The rally did fizzle as the week came to an end.  In part due to a research report from Nomura Research, indicating that now is a time to take profits in Mortgage Bonds and adopt a more neutral stance.  If this advise is followed, the mortgage bonds will lose in price with the investor profit-taking, driving home loan rates higher.

The disconnect between the state of our economy and stock prices has continued to grow.  In large part due to a varying difference in philosophies between our government and business owners.  Many major corporations have spent the last few years cutting back expenses in an attempt to sustain during the times of recession and economic uncertainty.  The fears of slowing growth and lack of conviction in a political direction have made companies reluctant to grow and hire new employees.  The end result is companies effectively managing their cash flow and creating a surplus of cash, allowing the payment of dividends and the hope of minimized downside risk.  On the other hand, our economy and government as a whole (both parties), are continuing in a direction of increased spending through economic stimulus, and employment growth through government jobs.  The end result here is yet to be seen, but the deficit continues to climb and massive amounts of cash only seem to appear in the form of stimulus.  Which philosophy do you think is working?

What’s coming up this week on the economic calendar and what’s the impact on interest rates?

The economic calendar is light this week leading up to the Non-farm payrolls report on Friday.  The majority of pressure on mortgage bonds and home loan rates will stem from reactions to Fed news and commentary throughout the week.  Wednesday will feature the release of the FOMC Minutes.  We already know that QE3 was the main topic in the last meeting, but the minutes could highlight some key points and opinions from the Fed members.  Particularly after Charles Plosser, President of the Federal Reserve Bank of Philadelphia, said he doesn’t think that QE3 will be effective and that competing philosophies are dividing the Fed members.

Investors in stocks and bond markets will also be monitoring  political unrest in Europe as Spain and Greece digest new austerity measures that may spawn violent protests.  Any unrest could be a catalyst for investors to seek the safe haven of our bonds.

Here’s our strategy for the days and weeks ahead…

With mortgage backed securities sitting at the best levels in history and mortgage interest rates extremely low, the Fed is achieving their goal.  There’s little reason to think that home loan rates will move significantly lower.

In the near term, we would expect that home loan rates would trend higher before going lower.  The Fed has their stimulus spending gun loaded to keep rates low, but as we started to see late last week, when supply starts hitting the market (bond sellers), there has to be a buyer on the other end (Fed) to keep the price from deteriorating.  Once the supply outweighs the purchasing power, the bond prices will drop and rates will go up.  To protect against this, we continue to recommend locking in rates at historic lows.

We maintain an ongoing dialogue with our clients about the market and interest rates throughout their financing experience so we can take advantage of the lowest rates when they present themselves. We all want the lowest rate, and the best way to ensure that you get the lowest rate, is to build a relationship with your mortgage planner, so they can best advise you on when to lock in your rate. Call us today for a complimentary mortgage review or Apply Online.