Market Commentary: Mortgage investors are at a
decision point – was the strongest rise in mortgage
interest rates in four months driven by an economy that
has turned the corner to sustained growth – or is the
run-up in rates overdone against a domestic and global
economic backdrop that still holds plenty of uncertainty?
For the third year in a row optimism is spreading that
economic growth and the attendant improvement in the
labor sector is poised to accelerate.
In my judgment the current optimism may be misplaced.
I am definitely in the minority on this one – but here are a
couple of points to consider.
This time last year the economy was generating 200,000
net new jobs a month between February and April -- only
to be derailed by rising oil prices created by the Arab
uprising.
In 2010 economic prospects looked even better.
Between March and May, companies were adding a net
309,000 jobs each month before collapsing sharply
lower once inventory rebuilding following the steepest
recession in 70 years was complete.
While current job growth is improving measured against
levels registered at the depth of the recession – it is
stilling running at the slowest pace of any recovery since
World War II.
Added to my reservations regarding the media hype over
payroll growth -- I think it is worth acknowledging that
even though the sovereign debt crisis in Greece has
temporarily been averted, it could reignite, possibly
before the summer is over. And there is no glossing
over the fact that oil prices will skyrocket and send
domestic and global economic growth into a tailspin
should simmering tensions between Iran and Israel erupt
into military conflict.
As have probably already guessed – my personal
opinion favors the idea that the recent run-up in rates is
overdone against a domestic and global economic
backdrop that is draped in so much uncertainty. I don’t
expect mortgage interest rates to move back to early
February levels – but I also don’t expect them to climb
much higher either.
Be patient – be disciplined – and use the risk
management blueprint provided above.
