Where are Mortgage Rates headed?

"LIFE IS NEVER BORING...BUT SOME PEOPLE CHOOSE TO BE BORED." Wayne Dyer Yet even if Traders had wanted to be bored last week, the financial markets had other plans. Volatility reigned supreme, with large swings throughout the week in Stocks, Bonds, and home loan rates — and once the smoke cleared, home loan rates were slightly worse than where they began the week.
What caused all the volatility? You name it — continuing concerns on the liquidity and stability of the financial markets; the Federal Reserve at work, cutting the Fed Funds and Discount Rates by .25% and the opening of a new auction facility; a red hot Retail Sales Report; and last but certainly not least, the Producer and Consumer Price Indices both showing inflation to be much higher than expected.
The big mover was the Fed rate cut of .25%, which was a disappointment to the financial markets, as a deeper cut was hoped for. The reaction was very negative for stocks, as the fear of a recession amidst the current credit crunch grows. There are increasing concerns that the Fed is not getting ahead of this problem.
But it is not an easy job for the Fed because they may be fighting a possible recession with a hand tied behind their back...this is due to higher levels of inflation. Surely inflation is still at reasonable levels, but even a little stronger inflation can take a major toll on our lifestyle over time. High levels of inflation have caused unrest, revolt, poverty and wars. It is possible that the Great Inflation of 1920 in Germany eventually led to WWII. During that time, prices rose over an almost unimaginable 1000 times a year! Savings were wiped out and imagine this...the cost of a loaf of bread went from 20 Marks to 20,000 to 20,000,000. And in Mexico, hyperinflation caused a crisis in the peso that has led to extreme levels of poverty. Of course, the US is nowhere close to this type of problem, but inflation is a very serious issue. And with the current rate of inflation in the US ticking higher and towards the upper range of acceptable limits, additional Fed cuts would push inflation even higher. So should the Fed risk a recession to protect against inflation or move to avoid recession and risk inflation? This will likely be one of the hotter economic topics of 2008.
So the week was certainly far from boring — and the volatility may just continue ahead. Yet overall, home loan rates continue to be at very low levels — so if you, or a client, friend, family member or neighbor have been contemplating a refinance or home purchase — now is the time to start making plans. Although the holiday season is a busy time, I am glad to make time for you and your referrals. And even if you don’t have a home loan need at the present time — it’s always wise for us to examine your overall debt structure and financial goals, just to ensure that you are positioned in the best possible way.
AND SPEAKING OF PLANNING...WHAT WOULD YOU DO IF $64,000 LANDED IN YOUR LAP TOMORROW? YOU MIGHT HAVE A FEW IDEAS IN MIND INVOLVING A TROPICAL HOLIDAY — BUT WOULD YOU REALLY KNOW WHAT TO DO IF YOU SUDDENLY CAME INTO AN INHERITANCE? THAT’S THE QUESTION OF THE DAY — SO DON’T MISS THIS WEEK’S MORTGAGE MARKET VIEW.