Wednesday, June 16, 2010


During the last month, mortgage rates have continued to fall even as the US economy appears to be settling into a sustainable recovery. Concerns over the debt-crisis in Europe has lead to significant money flowing into “safe” investments, with US Treasuries considered one of the world’s safest places to store cash. While many had predicted that mortgage rates would begin climbing when government supports for the mortgage and housing industry ended, limited negative impact is being experienced, so far.

Without the concerns in Europe, we might actually be seeing mortgage rates moving slowly upward. Manufacturing continues to power along, both adding jobs and rebuilding depleted inventories. We’re also seeing growth in services. Most analysts are predicting that GDP will remain within the 2.5% 3.5% range for the remainder of the year. The two areas of the economy that have the longest path to recovery are the housing industry and the labor market. Over the next few months we will be able to see whether the housing market can continue without government supports, as most program have now expired. The unemployment rate slid down to 9.7% last month, but much of the decrease was due to job seekers who abandoned their efforts to find work. While 431,000 new jobs were created, the overwhelming majority were temporary census positions.

So can mortgage rates continue to remain this low for very long? There is a reasonable chance that rates will remain low for the near term, especially if the European debt crisis continues to concern market players in the US, and also drives money from outside the US into US Treasuries. However, Fed Chair Ben Bernanke has indicated that he believes that the challenges in Europe will only have a modest impact on US economic growth. If his words sooth US markets, we could see mortgage rates beginning to move upward on each piece of positive US economic news

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