Technical Mortgage Monthly - July 2010: Mortgage Rates Continue to Decline in the Summer Heat

2010 started with hopes that the US would move out the Great Recession with little more than a few bumps along the way. However, as many leading economists predicted, the year started strong, and then began to fade. While there have been discussions about a double-dip recession, most analysts believe the US is simply moving through an anticipated slowing, on the way to returning to a healthier growth rate. As we move toward the halfway mark of summer, mortgage rates have continued to slowly slide downward, giving those with excellent credit and resources another historic chance at buying or refinancing a home with cheap money.

While many analysts did predict a mid-year slowing, the impact of the Euro-zone debt crises was not fully anticipated. The actual economic impact is not expected to be sizable, but for interest rates, the international “flight-to-quality,” did flood the US bond market, especially Treasuries, with an unexpected inflow of cash. This, combined with some slowing in manufacturing, which so far has lead the current recovery, has help drive mortgage rates downward again. Additionally, the US housing market has lost some of its direct support, in the form of tax credits, which has pushed sales of both new and existing homes downward. Of course, the economy will continue to struggle until we begin to see some recovery in the labor market.

As we move through summer, there is a high probability that mortgage rates will continue to remain depressed. With the Euro-zone debt crisis, there is little appetite in the US to try to finance too much more stimulus for the economy. We’re likely in a situation where we’ll wait to see if the stimulus packages of the past were enough to push the economy forward in the near future. However, even if the economy does begin showing greater signs of life, we could see mortgage rates remain very low until consumer attitudes brighten significantly. That, of course, will require a sizeable drop in unemployment, and a huge gain in new jobs.