Quick market recap

The temperatures are hot and so are the real estate prices!  We are buzzing with activity, but have patience; the lenders are all slow to the draw.

 Market Comment

Mortgage bond prices rose slightly applying downward pressure on mortgage interest rates. Trading remained extremely volatile. Energy prices remained the focus. Inflation fears were fanned once again as oil prices hit record highs. Bonds found some support when the Dow Jones index continued to struggle. A relatively benign employment report did very little to move the financial markets.

For the week, interest rates on government and conventional loans fell by about 1/8th of a discount point.

The trade data Friday will be the most important event this week. The weekly jobless report will garner more attention this week than usual with the lack of other substantial data releases. Oil and stocks will also likely continue to factor into mortgage bond movements.

Credit Demand

Inflation is typically the most important focus for the mortgage interest rate market. Unfortunately, mortgage interest rates continue to be pushed around by the fear of inflation. Most of the recent increases in interest rates have come following stronger than expected data despite uncertainly regarding the strength of the economy.

The level of interest rates reflects the balance between the supply of money from investors and the demand for money by borrowers. Rising inflationary expectations cause investors to require higher rates of return on investments to compensate for the erosion of the principal that eventually is returned to them. Regardless of inflation levels, though, rising economic activity can increase the demand for investors' funds, and thereby lead to higher interest rates. Investors pulling money out of stocks and into bonds have recently helped mortgage rates.

The demand for money diminishes as the economy struggles. The Fed lowers interest rates as an incentive to businesses and consumers to increase their borrowings. The Fed hopes manufacturers will increase their investments in plants, equipment and inventories and that consumers will push housing construction higher along with consumer spending and with that, consumer debt. The inverse is also true.

Analysts will monitor this week's consumer credit levels for any indications that consumers may be tapped out.

There is much debate in the financial community about the future. Economists, market analysts, and traders all seem to have a different opinion about the future state of the economy and especially the effects of rising energy prices. One thing most market participants agree on is both the bond and stock markets are going to see additional volatility. Now is a great time to take advantage of rates at the still historically favorable levels.