February 27th, 2007 · No Comments
I will re-read this post twice before I publish it so I make sure I do not sound like a market cheerleader. Instead of saying the mortgage market is "fantastic", let's look at why it is so "great" right now.
The Fed worries that a strong economy can lead to inflation, which is enemy #1 against mortgage rates. A slowing economy is a very good thing as it removes the price pressures that the Fed worries about so much. So, why is it becoming clear that the economy is slowing and that inflation is not a concern?
1. January Durable Goods (big-ticket manufactured goods) orders plunged by 7.8, estimate was for a drop of 2.5%. Durable goods require lots of labor to produce, can be pricey, and are usually financed. So the Fed looks to this report as an overall reading on the economy.
2. Former Fed Chairman Alan Greenspan said yesterday that the US economy may be at the end of an expansion cycle and could exhibit a contraction as early as the end of the year (read: recession.)
3. Geopolitical tension around the world (Iran and Afghanistan) is leading a "flight to quality" where global investors seek out US Treasury bonds as a safe place to park their money.
It is not all bad news, as today's Consumer Confidence Index came in higher than expected at 112.5, beating the forecast of 109. Consumer confidence is critical to a healthy, consumer based economy. Let's keep and eye on those gas prices since higher energy costs seem to cut into confidence and buying power.
Cheaper mortgage rates are welcome news as the housing sector tries to bounce back from the slowdown in 2006.
Take a few minutes and watch CNBC tonight as it is turning out to be a very interesting day for the markets.