Global Economy Drives Historically Low Rates
As 2012 is now in full motion, mortgage rates are yet again lower than many ever viewed possible. Although the U.S. economy is proving less resilient than hoped, we still credit much of the mortgage rate improvement toward continued economic turmoil in Europe and abroad. Spain and France were both downgraded by S&P last week, and talks have been strained with Greece and its creditors as they attempt to work toward a resolution to restructure existing debt. Germany also reported a fourth quarter loss to their GDP.
Some believe that the full impact of rating agency actions have yet to be realized by some investors, which could mean more investment could be driven toward U.S. debt, supporting lower interest rates. Greece is also quickly approaching March 20, where over $14 billion of their debt will mature and may require another bailout in order to avoid default. The European Central Bank summit will occur on January 30th, so we are likely to continue to see rate volatility due to news from Europe for the foreseeable future.
China’s fourth quarter GDP grew at the slowest pace in the last 2.5 years which is fueling the fire for lower rates. The U.S. economy reported higher than expected job loss after the holiday season and holiday retail sales also missed expectations, contributing toward rising inventories. Overall, investors last week sought shelter in safer investments such as U.S. Treasury debt and mortgage-backed securities, driving mortgage rates to all-time lows. Thursday will contain numerous economic reports (including the Consumer Price Index and Jobless Claims) that should give investors additional indications as to U.S. economic direction. Look for possible interest rate volatility toward the end of the week.
When the government extended the payroll tax cuts in late December, one of the provisions to compensate for these lower taxes was to be a fee imposed on all mortgages backed by Fannie Mae and Freddie Mac. With most current mortgage products backed by these Enterprises, we expect most mortgage rates to increase by 0.10% in the coming month. If you have a loan you have been working to close, you may want to talk with your VP of Mortgage Lending to get an idea if you can lock and close your loan before this fee is fully implemented.