Richard's Real Estate Thoughts: Which way mortgage rates?

Today interest rates ended the week trending upward. This is largely attibuted to a week of mixed economic reports.

Rates are always unpredictable in the short term and in the long term. Their movement is frequently seen by many as completely arbitrary. The general rule is that interest rates move directly in relation to inflation concerns of the bond traders on Wall Street as they react to various economic reports. 

During this week consumer spending slowed and personal income dropped. This movement would tend to slow inflation.

During the week Gross Domestic Product for the 2nd quarter was revised significantly upward to 3.3%. This movement tends to increase concerns about inflation.

There were other economic reports this week. Combined they communicate a very mixed picture of the economy. It may be that the reports that indicate inflation have been impacted by the stimulus of the tax rebate. Because of the long weekend and the uncertainty over the direction of the economy, bond prices fell this afternoon. This movement in the bond market pushed mortgage interest rate higher. 

 Economic reports are published throughout the month. Economists for various lenders have expectations about what those numbers will be. Interest rates prior to the report are based on those expectations.

When the report is published, rates typically reflect no change if the numbers are as expected. If the numbers are more inflationary than expected, rates increase. If the numbers are less inflationary than expected, then rates may decrease.

These issues are complex, and it is probably not a good idea for a non professional to rely too much on any particular prediction. My recommendation is always to lock your loan, if the payment is acceptable, rather than risk that increasing rates might make the payment too high. Then the new homeowner can just focus on the preparation for their new home. Rates will likely increase and decrease during the period before the purchase closes.

But it is helpful to understand some of the more important economic reports, and to know when these reports are published.

Employment reports - these reports, non farm payroll and unemployment report, measure employment rates. The report is published on the first Friday each month. Increasing payrolls tend to predict increasing inflation. 

Retail Sales - this report relects consumer spending. Increases are of course inflationary, but several factors can produce volatility that can cause significant revisions later in the month. The report is published around the 13th of each month.

Consumer Price Index - the price of a set of goods and services. This is a well known measure of inflation because it is used to set cost of living adjustments. The CPI is published around the 13th of each month.

Gross Domestic Product - the broadest measure of economic activity. This report is published in the 3rd or 4th week of the month for the previous quarter. In each subsequent month, revisions are published.

There are numerous other reports, each with various levels of importance. My website makes available the Daily Interest Rate Advisory Report, a professionally written and understandable summary of the important economic reports for each day and week. You may subscribe to receive this report weekly or daily.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.