So what comes next for Interest Rates, and the housing industry?
This is the $64,000 question (actually given today's hyper spending maybe that should be $64 Million Question). The last couple days have seen a significant spike in interest rates, and there are a number of reasons, but they all eventually come back to the overspending by our government. Specific to this week is the health care bill, and with it comes some fairly stark world opinion of the passage of this plan. While the Obama administration, and the Democrat party are selling the American public on the idea that this will somehow lower the US deficit by several hundred Billion Dollars, the rest of the world is not buying.
The final Treasury auction of this week saw what is basically a 20% decline in participation that Wall Street Bond traders directly attribute to the passage of the Health care bill. Investors paid about 10% less for every dollar of debt, and Indirect Bidders (mainly Foreign Central Banks) bought roughly 20% less than they have been over the last year. http://www.marketwatch.com/story/treasurys-recover-after-rout-7-year-sale-on-tap-2010-03-25 Their take on the latest auction results is that investors believe private corporations are a better credit risk than the US Government!
Add to this with the knowledge that the Federal Reserve stops buying Mortgages (actually Mortgage Backed Securities - MBS) next Wednesday which means the private sector will have to step up to replace what amounts to nearly 80% of the mortgage market buying. That is the same private sector that is viewed by investors as being more responsible with their budget than the US government.
So what do you think they will expect for a return on their investment compared to the Fed?