Market Comment
Mortgage bond prices fell pushing rates higher last week. Bonds started the week in negative territory and moderated a bit following inflation data that was inline with expectations. Unfortunately stronger than expected housing starts data and continued stock strength pressures rates higher.
For the week, interest rates on government and conventional loans rose by about 1/2 of a discount point.
The durable goods orders data Wednesday will be the most important event this week. New home sales data will also be important.
LOOKING AHEAD
EconomicIndicator
ReleaseDate & Time
ConsensusEstimate
Analysis
Durable Goods Orders
Wednesday, May 23, 8:30 am, et
Up 1.0%
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
New Home Sales
Thursday, May 24, 10:00 am, et
Up 0.2%
Important. An indication of economic strength and credit demand. A decrease may lead to lower rates.
Existing Home Sales
Friday, May 25,10:00 am, et
Down 0.3%
Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates.
Housing Holds WealthWhile most Americans and media sources lament the recent weakness in the housing market, home values remain historically very high. Rising real estate prices have enabled homebuyers to increase their wealth.
Home ownership is a wealth-building tool that is commonly encouraged by relatives, friends, financial planners, and even government entities.
In fact, property ownership is often referred to as "the American dream." Former Federal Reserve Chairman Alan Greenspan went as far as addressing the mortgage industry to encourage young people to buy homes so they can start building wealth. In addition, quasi-government agencies such as Ginnie Mae and Fannie Mae encourage first-time homebuyers with specialized mortgage financing options. Zero and low-down payment options provide buyers the ability to purchase property with reduced or no cash requirements. These options are invaluable tools in helping people toward property ownership.
Financial analysts often indicate the advantages of home ownership include equity growth and a shield against rent inflation. Capital gains on home sales are often tax-exempt. As interest rates rise, landlords typically increase rental amounts. Homeowners often protect themselves from these types of increases with fixed rate mortgages.
Property owners also control an asset that can be used to obtain cash. Refinancing and home equity loans are two common methods of obtaining this cash. As the value of property increases, the ability to withdraw against the value of the property increases. This provides many consumers the ability to purchase household goods and services they could not otherwise afford. The net effect is economic growth in the US economy.
Mortgage interest rates remain historically low and the opportunities for homebuyers and homeowners remain abundant. With low interest rates, homebuyers are able to afford larger homes and homeowners are able to save on their mortgages through refinancing.
The future of the economy remains uncertain. Strong growth with inflationary pressures could lead to a sharp spike in interest rates. Now is a great time to take advantage of mortgage interest rates at these historically favorable levels.
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