The Market: Condition & Comment

There is a Chinese proverb that states, “May you live in interesting times.” It is often argued that the word interesting is meant to be a synonym for turbulent or dangerous. This phrase hits the bull’s-eye given the current state of the financial markets.

Mortgage bond prices rose last week pushing mortgage interest rates lower. Stocks fell which helped bonds rally. Trading remained very volatile. Record high oil prices tempered improvements in mortgage interest rates as the fear of inflation continued to dominate the financial markets. OPEC blamed speculators and a weak dollar while some analysts expressed supply concerns associated with unrest in Nigeria. Foreign demand for US debt securities dwindled. For the week, interest rates on government and conventional loans fell by about 3/8 of a discount point.

While stocks and bonds are swinging around wildly there is some good news. Interest rates for conforming and FHA/VA loans are still historically low by many standards. However, low rates are not a given considering the escalating inflation fears that continue to dominate trading amid rising oil prices. Many analysts predict oil prices will continue to rise. While this doesn't automatically equate to higher mortgage interest rates, rising energy prices are usually viewed as inflationary. Inflation erodes the value of bonds causing bond prices to fall and rates to rise. Other investors believe slowing growth and the credit crisis will eventually stem the rising prices. This scenario would generally be positive for bonds. With so much uncertainty, a cautious approach to float lock decisions would be wise.

http://TeamStrand.com
Mike & Lindsay Strand
REALTORS, ABR, e-Pro
(952) 945-3151
TheStrands@EdinaRealty.com