While the economic data released this week had little impact, mortgage rates were heavily influenced by two big stories. One was an announcement that China will take steps to slow its economic growth and the other was President Obama's proposed new restrictions on the activities of financial institutions.
Bill Gross, Pimco’s bond god, said the decisions were based on their view of the dollar’s direction (negative) and increased government debt. All of the above has been good for mortgage pricing and bad for your 401K.
While Austin mortgage rates climbed in December, they have decreased during the first two weeks of January. A combination of factors was favorable for mortgage markets this week. Low inflation, weaker than expected economic growth data, and strong demand for the Treasury auctions all helped Austin mortgage rates move a little lower.
In a week full of major economic news, mortgage rates ended with little change. Wednesday's Fed meeting produced little reaction in mortgage markets. The PPI inflation report was higher than expected, but the more closely watched CPI report was right on target, remaining at low levels. Economic troubles in some developing nations produced a flight to safer assets, which helped mortgage markets late in the wee
Overall, we feel that the housing market is stabilizing but will need to content with another wave of foreclosures as homeowners remain underwater and the loan modification programs to date have been a bust.
With trading volume starting to fall off a cliff, expecting the market to move much in any direction is possible but probably not in the cards. Next week will be worse.
This week's economic news was mixed for mortgage markets. A speech from Fed Chief Bernanke pushed mortgage rates lower early in the week, but weak results in the Treasury auctions caused them to turn higher again later in the week. In the end, mortgage rates finished with little net change.
With stocks near unchanged and a basket of economic uncertainty, best to not throw caution to the wind. Bernanke's mandate for low interest rates well into the future, coupled with a staggering deficit, falling dollar, 3 trillion in health care costs on the docket, and taxes for both individuals and small business destine to rise in 2010 will create difficult challenges and unintended consequences. With the Fed policy a given, we expect to see a floor under the bond market, supporting both treasury and mortgage back security pricing. Buying sponsorship (upcoming auctions) and year end book closings will be the challenge (liquidity issues).
Big news for the housing market came Friday when the President signed a bill extending and broadening tax credits for homebuyers. Major points were first reported in an Inside Lending Bulletin last Thursday. The tax credits apply to contracts signed by April 30, 2010, that close by June 30. Income limits for eligibility have been increased to $125,000 per year for individuals and up to $225,000 per year for couples. Credits up to $8,000 continue for first-time buyers but there is now a $6,500 tax credit for buyers who've owned their current home at least five of the last eight years. However, homes selling for more than $800,000 are not eligible.
While our economy continues to struggle, job losses continue, and inflation remains a non-issue, there is a growing unease about the timing of future Fed actions and the market's ability to digest them. Today's FOMC announcement is not expected to make many, if any, changes versus September's announcement but the words will be scrutinized for even small hints of policy changes.
