The economy appears headed for a strong 2007, which should keep pressure on mortgage loan interest rates. Those buyers hoping for the “perfect storm” of low interest rates and high housing inventory may be left waiting, awhile longer.
From wire reports:
Fourth-quarter Gross Domestic Product (GDP) arrived at a 3.5 percent gain, at least double the forecasts prevailing on Dec. 1 …
This means that the Federal Reserve will have to keep an eye out for (further) signs of inflation. If the Feds get spooked, they’ll raise rates, leading to higher long-term loan interest rates. Mortgage loan rates will increase, as well.
And, this is as important:
The cause of subnormal long-term rates, in rough order of priority: a shortage of high-quality bonds (Yes! Federal deficit down to $172 billion, mortgage issuance off by half) versus demand from recycled Asian and OPEC trade surpluses, investors desperate for yield, and equal desperation for long-dated assets among insurance and pension providers.
Supply & demand, right? Investors want to buy long-term bonds, but there aren’t many available (of good quality). This means that debt issuers don’t have to offer high interest rates on their loans. This has kept mortgage loan rates lower than they might be, otherwise.
Unfortunately, any of those things could change, quickly. The Chinese government could back out of, or, more likely, slow down its purchases of US Treasury bonds, for example.
The economy added a net 111,000 jobs in January, according to the Labor Department. The consensus among economists was that job growth would be more like 150,000.
That sounds bad, right? Not really. Why?
… (T)he job-creation estimates of previous months were revised upward. Previously, the government had reported that the economy had created a net 407,000 jobs in those three months. Now, with the revisions, the government says the economy created 511,000 jobs.
So the January preliminary estimate was 39,000 jobs short of the consensus forecast, but the feds have revised job creation for the previous three months upward by 104,000.
More jobs were created over the past quarter than anyone thought. Again, this will put more pressure on the Fed to raise interest rates. If everyone who wants a job has a job, then those who have jobs will start asking for more money. This wage inflation is what the Feds want to keep from happening.
Last month, the national unemployment rate when up, nominally, but not because the national job market got worse. The contrary. Although 111,000 jobs were added, almost 200,000 people entered (or re-entered) the market. This probably includes a lot of people who pulled out of the market, completely, months or years ago, because they couldn’t find a job, but have re-entered the market because they see opportunities. Again, a higher unemployment rate, in this instance, might be a sign of strength, not weakness.
Money Matters – By Holden Lewis, Bankrate.com
Mortgage market commentary – By Lou Barnes, Inman News