Mortgage Rates and The Debt Ceiling

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Mortgage and Lending with Van Dyk Mortgage NMLS:98535,Corp 3035

 

Mortgage markets worsened last week as the Greek  debt situation came closer to being resolved, and  the US housing market showed signs of life.

After  weeks of debate, European leaders agreed on a financial package for Greece that featured favorable loan terms designed to slow Eurozone contagion, along with a built-in, 37 billion euro “haircut” for private-sector investors.

The accord pleased Wall Street.The market rallied after the announcement and Mortgage bonds sank.

Bonds also sank after a strong home builder confidence report Monday. 

Last week, conforming and FHA fixed mortgage rates increased  and for the first time in 3 weeks. Adjustable-rate mortgages slipped slightly.

The interest rate spread between the Freddie Mac 30-year fixed rate and 5-year ARM is back near its all-time high.

This week, mortgage rates will be guided by Congress’s on-going U.S. debt ceiling debate. The United States government is expected reach its legal $14.294 trillion debt limit August 2, 2011. Congress must either vote to raise the debt ceiling, or take steps to reduce debt prior to August 2.

The debt ceiling was last raised February 12, 2010.

It’s unclear in which direction Congress will vote. Therefore, mortgage rates may be erratic until a deal is reached. If the debt limit is raised, expect mortgage rates to rise. This is because carrying high levels of debt can devalue the U.S. dollar and mortgage bonds are less valuable as the dollar weakens.

On the other hand, if Congress votes to make cuts in the budget, mortgage rates should fall. This is because fewer treasury securities will be issued, creating fewer inflationary pressures on the U.S. economy. Inflation is linked to higher mortgage rates.

Also this week : New Home Sales (Tuesday), Pending Home Sales (Thursday), Consumer Sentiment (Friday), plus Treasury auctions of 2-year, 5-year and 7-year notes. Each event can move mortgage rates so be ready to lock at a moment’s notice. 

With the uncertainty in the markets things could become very volatile very quickly.  Rates could shoot at any point if the wrong news should come out.  It may be wise to lock in your rates if you are looking to purchase a home anytime in the near future.  Also you can give me a call to discuss your situation at 866.435.6553 or email me at bill.mcdonald@nflp.com


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Knoxville, TN 37909

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Rainer
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John Saari
Worcester, MA
"The Mortgage Buddy"

Nice post. It's tought to say on this one. I think rates could pull back but European spreads did just the opposite.

Jul 25, 2011 04:02 AM #1
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Rainmaker
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