There’s always something to howl about.

Why I think the Jobs report won’t be helpful for mortgage rates….

Okay, let’s face the fact that the jobs reports and the reports from Ford and General Motors that came out today were ugly.   Not just ugly, downright nasty.

In normal economic times, that sort of bad economic news would send people fleeing stocks and going into the bond market.   That would in turn send bonds and Treasuries up and the rates down.

But that didn’t happen.   Just looking at one indicator – the 10 year Treasuries, the yield went up by .09% today.   What’s up with that?

A couple of things are keeping mortgage rates higher than what the economic fundamentals would justify:

  1. The amount of money the government is spending on bailouts.  The Federal deficit is truly skyrocketing because of all of the bailouts, buyins, rescues, TARPS, etc. that are happening.  That money needs to be financed somewhere because we don’t have the money sitting in the “bank.   When the markets get flooded with additional loan demand, the “buyers” of the debt can demand a higher rate on their money.   That pushes rates up.
  2. The concern that foreigners are not going to be able to continue to buy our debt.   This is not an economic downturn that is only happening in the United States, it’s truly an international downturn.  If, due to concerns about the amount of US debt or due to economic downturns in other areas, foreigners either stop or slow down the amount of US debt that they buy, that will reduce demand and push rates higher.
  3. The Bank of England cut rates by 1.5% this week (in their version of the Fed Funds rate).   We can’t do that.   Why?   Because we’re already at 1.0%.   So the options that the Fed has going forward are more limited than we’d like to see them.

I truly believe that if this was a “normal” economic downturn, we’d see mortgage rates at least .75% lower than we have them.   I also believe that short of a major Federal “buyout” of mortgage backed securities (a topic for another post), we aren’t going to see rates substantially lower than we have them now.   I also believe that it’s going to be very hard for the government to “maneuver” interest rates far enough down so that they can become an “attraction” to get additional people off the fence and in to the buying market.

To paraphrase the well known broadcaster, “And that’s the way I see it……”

Tom Vanderwell