September 26, 2012
Last week in review (September 17 - 24, 2012)
Last week, we saw a lot of action in the volatile financial markets duein large part to the Fed’s announcement of another round of bond buying (known as Quantitative Easing or QE3). Here's what you need to know and what happened to home loan rates.
Table source: Mortgage Success Source
Quantitative Easing is the concept of the Fed becoming a buyer of treasuries and bonds aimed at stimulating the economy. The Fed announced QE3 because our economy is still struggling (especially our housing and labor markets) and inflation has appeared tame.
Evidence that our economy is still struggling was especially noticeable in the manufacturing sector last week. The New York State Manufacturing Index registered -10.41 in September (its lowest level since April 2009), while the Philly Fed Index showed that manufacturing in that region contracted for a fifth straight month in a row. The news wasn’t positive on the labor front either, as last week’s stubbornly high Initial Jobless Claims reading of 382,000 was above expectations. However, there was some positive news on the housing front last week, as Existing Home Sales for August rose to a two-year high.
What does all of this mean for home loan rates? Remember that negative economic news normally causes investors to move their money out of risky investments like stocks and into safer investments like bonds, including mortgage bonds (which home loan rates are based on). That’s why home loan rates often improve when our economy is struggling. Investors also tend to move their money into safe investments like our bonds during times of global uncertainty, such as last week’s turmoil in the Middle East. These two factors, combined with the Fed’s QE3 Mortgage Bond purchases, all benefitted Bonds and home loan rates last week.
It’s important to keep in mind that one of the goals and consequences of QE3 could be inflation. And inflation almost always has negative effects on bonds and home loan rates, as it reduces the value of fixed investments like bonds. This will be an important development to watch for in the coming weeks and months.
The bottom line is that now is a great time to consider a home purchase or refinance, as home loan rates remain near historic lows.
In the news this week (September 24 - 28, 2012)
Table Source: Mortgage Success Source