Moorings Column 11-12-12

Hello and welcome to this week’s edition of Moorings, your source where local and national mortgage and real estate news meet. As always, let’s take a look at where interest rates are for this week. Currently, a borrower looking to purchase or refinance their primary residence with a conventional thirty year fixed rate loan can expect an interest rate of approximately 3.5%. This is down a bit from last week’s 3.625%. Rates have been fluctuating just by that one eight of a percent for months now it seems, and hopefully they will remain at these low rates for the foreseeable future. As always though, we never know what major event may cause them to shift, so take advantage while you can and talk to your preferred mortgage banker about refinancing or purchasing a home.

In major economic news, the Fed is continuing its round of Bond buying (known as Quantitative Easing or QE3) until the labor market and economy improves significantly. While recent Jobs Reports have shown modest improvement in the labor market, it is still a fragile area of our economy. For instance, September’s Job Openings and Labor Turnover report came in at its lowest reading since April. However, the number of job openings did increase by two percent from September of 2011, signaling a ray of hope for the labor market.

With QE3 in process and the elections over, the buzzword on Wall Street as we approach 2013 is “Fiscal Cliff.” What is the Fiscal Cliff and why is it significant? Essentially as we head into 2013, tax cuts for individuals and various tax breaks for businesses are due to expire, taxes pertaining to President Obama’s health care law will begin, spending cuts enacted by Congress as part of the debt ceiling deal of 2011 will go into effect, and long-term jobless benefits will expire. The Congressional Budget Office (CBO) estimates that if all of these items occur, it could take an estimated $600 billion out of the U.S. economy in 2013, pushing the country into a recession.

So what does this mean for home loan rates? The issues surrounding the “Fiscal Cliff” will be talked about from now until the end of 2012 and that spells a lot of market uncertainty, which typically results in investment dollars moving from Stocks into Bonds-thereby improving home loan rates (which are tied to Mortgage Bonds). In addition, continued concerns over the debt crisis in Europe and more riots in Greece will likely keep investors in the safe haven of our Bond markets, which will also benefit home loan rates.

However, a big issue we need to continue to monitor is inflation. One of the goals of QE3 is actually to create inflation. And remember, inflation is the arch enemy of Bonds (and therefore home loan rates) as it reduces the value of fixed investments like Bonds. This is an important issue to watch in the weeks and months ahead. Well that’s all for this week and until next week, Be Blessed and Numbers 6:24-26 be on you.