All Eyes on U.S. Debt NegotiationsJul 25 2011
Mortgage rates remained flat last week as the news continued to highlight our choppy and slow economic recovery. While there was optimism in the housing market when Housing Starts leaped to an unexpected 14.6%, it was quickly tempered as the Existing Home Sales fell under expectations, dropping 0.8% rather than increasing.
This week, we’ll get our first glimpse of how the economy faired in the second quarter. Although we are in a recovery, the lack of job creation and the struggling housing market is keeping the economy from reaching its full potential. Expectations are for a slight dip in GDP, but an unexpected increase could push rates upwards.
This is also the last full week the US government has to complete a deal to raise our national debt ceiling. The volatility around mortgage interest is increasing as the market focuses on the US debt ceiling. Borrowers should look for signs of a smooth debt ceiling resolution by the week’s end to ensure that rates don’t materially increase, as we head into next week’s debt ceiling deadline. If a deal is worked out, there would be little impact on mortgage rates, but no deal would increase the risk of higher rates. This would most likely cause rating agencies to downgrade the US credit rating, making investors more skittish around US debt.
However, US debt does remain a favored investment decision compared to many international options and despite continued mixed economic reports, mortgage rates have remained relatively strong over the last week.