Market Commentary: The economic news scheduled to be released this week is expected to support the growing popular notion among analysts that U.S. economic growth will be steady if unspectacular in the months ahead.
On a stand-alone basis it is highly unlikely mortgage investors would view current domestic economic conditions as weak enough to justify a move to yet lower mortgage rates. In the current environment, under normal conditions, it is far more likely profit-taking and conservative risk management strategies would produce enough selling pressure to cause mortgage rates to creep fractionally higher. But there is nothing “normal” about current credit market conditions.
The ongoing Greek political turmoil spawned by their sovereign debt disaster together with accelerating deterioration in the Spanish banking system are fueling worries that these relatively small fires may soon burn out of control – engulf the whole of Europe – and ultimately lead to a major global financial crisis.
As long as the perceived threat of a major financial meltdown in Europe dominates the thinking of credit market participants -- the general flow of global capital will tend to favor the relative “safe-harbor” of U.S. dollar denominated assets like Treasury debt obligations and agency eligible mortgage-backed securities.
The good news is that this “flight-to-quality” buying phenomenon is now single-handedly providing the near-term support for steady to perhaps fractionally lower mortgage interest rates.
The bad news part of this story is that when (not if) the perceived threat of a major global financial meltdown begins to diminish -- the ensuing upward bounce in the trend trajectory of mortgage rates will almost certainly be more pronounced than casual observers now imagine. Don’t let yourself be among those lulled into the complacency trap. The wise question to ask is not how much lower will rates go – but how much higher will you let rates get before you lock?
