Mortgage Rates Improving Despite S&P DowngradeAug 8 2011
The biggest news to start the week centers on the impact of the U.S. credit rating being lowered from AAA to AA+ by Standard & Poors. Not only have many analysts expected this move, but large investors (both foreign and domestic) have come out over the weekend, stating that their view of U.S. Treasuries has not changed. In fact, we have seen a flight to quality once again, where investors are moving toward Treasury bonds, lowering mortgage rates. Some fears center on the following:
• With the U.S. being downgraded, other investment vehicles will soon be downgraded. Rather than a credit rating, investors are looking at the inherent risk of their different investments and sticking with the U.S. Treasuries.
• Debt concern continues in Europe, making U.S. debt a much safe option. The European Central Bank just voted to start buying Italian and Spanish bonds in order to prevent borrowing costs from getting out of control in these countries (in turn causing the Euro debt crisis to spread further).
• Recession fears remain significant and many investors continue to pull money out of equities and lean toward lower risk investments.
Some of the incredible mortgage rate drops we saw over the past week were paired back on Friday as the economy added 117,000 new jobs vs. an expected 85,000, causing the unemployment rate to drop to 9.1%. But, with the S&P downgrade and the subsequent flight to quality, rates are back near all-time lows for 2011.
With the numerous contributing factors toward today’s low rate environment, it’s hard to say how long it will last. Despite few economic reports being released over the next couple days, it will be important to watch everything from continued rating agency actions, to the U.S. economic outlook, the Euro-Zone debt crisis, and any political statements surrounding the debt ceiling and government spending.