Our expectations were incorrect. Thank goodness...

By
Real Estate Agent with Equity Real Estate - Davis Co. Office

Last week's economic news should have been enough to make bonds and home loan rates "bust a move", but they didn't. "You want it, you got it", and a flurry of stronger than expected economic reports hit the wires, indicating a resilient economy. Strong economic news usually spells good things for US businesses - which tends to push money out of Bonds and into the Stock market. We also know that strong economic data can point to higher inflation, which is the arch enemy of bonds. So when money flows out of the Bond market, the value of Bonds fall - and since home loan rates are tied to Bonds, this in turn causes home loan rates to rise.

Here's a rundown of the headlines...the inflation measuring Consumer and Producer Price Indexes (CPI and PPI) both were hotter than expected, showing some lingering inflation in the economy; Housing Starts and Building Permits were both reported as better than anticipated; Initial Jobless Claims were lower than expected, indicating a strong labor market; the Philadelphia Fed Manufacturing Index was higher than estimated; and to top off the week, the Consumer Sentiment Index came in very strong - a three year high! But a closer look at the inflation numbers showed that prices are only increasing at a slightly higher pace than desired by the Fed, which keeps inflation as a concern, but not a reason to panic.

Whew! With all this strong economic news, it's surprising that Bond prices and home loan rates just stood there. Despite some midweek bouncing around on the news, Bonds and home loan rates ended up the week only slightly worse than where they started.

Comments (1)

Patricia Beck
RE/MAX Properties, Inc., ABR, GRI, SRES - Colorado Springs, CO
Colorado Springs Realty
Nilton, your post was informative; you are very knowledgeable about our economy and how different factors affect home loan rates.  Thank goodness is right, all we need in our market is higher rates. 
Jan 22, 2007 03:01 PM