Mortgage investors have already
priced into their rate sheets expectations that May
employment growth will be disappointing. The current level
of mortgage interest rates also represents the consensus
view among credit market participants that the coming
manufacturing and service sector surveys will show
weakness as well.
The steady march to fractionally lower mortgage rates is, in
my judgment, becoming increasingly dependent on factors
other than soft economic news.
More specifically, the key drivers behind lower mortgage
interest rates in the coming weeks will likely be related to
news surrounding the sovereign debt crisis in Greece, the
price of gasoline at the pump, and the structure of the deficit
reduction plan Congress is attempting to cobble together.
For what it is worth -- here is my assessment of how each of
these broadly diverse events could/will affect your investors’
rate sheets in the coming week(s).
If the European Union fails to come up with a viable solution
to resolve the Greek debt issue – mortgage rates will fall. If
the EU saves the day without a default by Greece --
mortgage rates will probably edge higher. If prices at the
pump continue to decline – upward pressure on rates will
begin to build while resurgence in upward trending gasoline
prices will tend to be supportive of steady to fractionally
lower rates. Should Congress raise the debt limit while
simultaneously cutting the budget deficit through higher
taxes -- look for mortgage rates to move lower. But a debt
limit increase with a deficit reduction plan that relies largely
on “creative accounting” will almost certainly put upward
pressure on rates. Pay at least a little attention here.
