Mortgage rates dropped to near three-year lows last week with economic data continuing to point to a slowing economy and inflation data revealing a nearly stable inflationary environment. This should allow the Fed to drop interest rates again at the end of the month. Note that while there is clear evidence that the rate of economic growth has slowed, we do not appear to be in a recession. The economy faces significant challenges.
The Stock market has gotten hammered lower since the beginning of the year, and last week was no exception. But when Stocks move lower, money can flow over into Bonds, helping home loan rates improve. What caused last week's action was a combination of terrible earnings reports from Citigroup and Merrill Lynch; higher inflation numbers indicated in the Consumer Price Index; lower than anticipated Retail Sales; a weak report from the Philadelphia Fed showing a sharp contraction in manufacturing activity; and a Housing Starts and Building Permits report showing the worst levels of starts and permits in about 16 years.
The slowdown in new home construction is actually not bad news, as overbuilding has helped to create a glut of inventory in the real estate market. Less inventory coming on the market is actually a real positive as the housing market continues to settle. And with home loan rates at multi-year lows, now may be the time to act on that home purchase or refinance.
The week ahead has very little scheduled economic reports in store, with only Existing Home Sales and Initial Jobless Claims coming on Thursday. Remember that as Bond prices move higher, home loan rates move lower.
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