A partial shutdown of the federal government was avoided late Friday night, when Democrats and Republicans agreed on a budget deal and a short-term funding extension little more than an hour before the deadline. The extension cuts spending by $2 billion and will last through next Friday, April 15.
But all the uncertainty leading up to this decision was just one factor that caused Bonds and home loan rates to worsen through the week. On Thursday, as expected the European Central Bank (ECB) raised their benchmark rate in an effort to curtail rising inflation, meaning the Euro now trades at its highest level against the US Dollar since January 2010.
Despite the weakness in the Dollar, the disparity between the two is somewhat surprising, given the economic headwinds and problems that Europe has been facing. But as the saying goes, "Markets can remain irrational longer than we can remain solvent." At some point, we should expect weakness in the Euro and a rebound in the US Dollar. The passing of the US Budget agreement should help.
So the question remains: Why does this matter when it comes to home loan rates?
A weak US Dollar typically helps Stocks, as it makes our goods and services relatively cheaper for foreigners, thus helping our export business and GDP. And when Stocks are boosted, investors typically move their money from safe-haven investments like Bonds into Stocks to take advantage of gains there. And since home loan rates are tied to Mortgage Backed Securities (MBS), which are a type of Bond, when these Bonds worsen, home loan rates worsen, too.
That said, home loan rates are still relatively incredible, but keep in mind that before long, the Fed and the Treasury will both be selling off their MBS holdings accumulated through their first round of Quantitative Easing (QE1), and it will be touch to see Bonds and home loan rates make meaningful ground once that selling begins.
With historically low rates and reasonable home prices, It's a great time to buy! Call us for more details or information about homes for sale in Salt Lake Clity.
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