Mortgage markets improved last week on domestic jobs data and international banking concerns. The news triggered buying in the bond market and, as a result, conventional, FHA and VA mortgage rates in California improved for the 4th consecutive week.
Mortgage rates are now at a 6-week low but probably shouldn’t be. It underscores just how important global events can be to U.S. mortgage markets.
For example, corporate earnings continue to improve and key elements of the economy are strengthening. Even the Federal Reserve acknowledges this. In most circumstances, that would be a boon for the stock markets and bond markets would suffer, including mortgage bonds.
Last week, that wasn’t the case.
Early in the week, as (1) China tightened its monetary policy, (2) Greece did little to quell lingering default fears, and (3) Spain raised its deficit forecasts, global investors sought to reduce their collective risk exposure. For safety of principal, many sold some of their more aggressive positions and moved the cash proceeds into the U.S. bond market — which includes mortgage bonds.
On Wall Street, this type of trading pattern is called a “flight-to-quality”. Because mortgage bonds are backed by U.S. government entities, the debt is considered to be ultra-safe. Last week’s extra demand for bonds helped to push prices up and mortgage rates down.
And that was before Friday’s weak jobs report. Although the Unemployment Rate fell to 9.7%, the government reported a net loss of 98,000 jobs last month and this, too, helped mortgage rates tick lower.
This week, we’ll hope for momentum to continue.
There’s very little domestic news to move rates this week so keep an eye on the global market for similar stories like what we saw last week. Or, if you’re not sure what to look for, just give me a call or send me an email and I’ll be happy to watch the markets and mortgage rates for you.
Cities like Harrisburg, Washington DC and other capitals have less flexibility because of the high amount of tax exempt property in their boundaries — effectively an additional public subsidy of government functions. Some cities like this have higher water or utility rates to make up the difference (politicos and their friends presumably go to the bathroom and wash their hands, benefit from clean streets and police protection). An “impact fee” from the state to equate to lost property taxes or services consumed would at least be fair — although unlikely to go as far as covering their incinerator debts.