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U.S. mortgage interest rates yoyo-ed wildly during the latest month, following similar trends on Wall Street and in consumer confidence measures. According to data from Freddie Mac, rates on 30-year fixed rate mortgages began at 6.10 percent, excluding points during the week ended October 2, and then fell to 5.94 percent the following week. From there the rate skyrocketed up 52 basis points to 6.46 percent during the week ended October 16, the fastest weekly increase in more than 20 years. The rate then dropped to 6.04 percent, before bouncing back up to 6.46 percent by the end of the month.
Highly Influential Factors
Federal Reserve Actions - The Federal Reserve made an emergency 0.5 percent cut to its target rate on October 8, lowering the federal funds rate to 1.5 percent, its lowest level in more than four years. The decision was part of global financial effort, including five other central banks, to infuse the world's economy with more liquidity. Then, on October 29, at the Fed's regularly schedule meeting, it voted to further crop the rate to 1.0 percent in light of continued weakness in the business and consumer spending.
Consumer Spending - During the third quarter of 2008, the consumer spending contracted at rate of 3.1 percent, the first time the measure has fallen since the fourth quarter of 1991. Consumer spending typically accounts for about two-thirds of all national economic activity.
Moderately Influential Factors
GDP - Results for the third quarter were released at the end of October, showing a 0.3 percent decrease in gross domestic product, and a dramatic drop from the 2.8 percent growth rate in the second quarter. The traditional definition of a recession is two consecutive quarters of shrinking GDP, which has not yet occurred in the current financial crisis.
Consumer Confidence - The Conference Board reported that consumer confidence dropped to a record-breaking low in October, with its index falling to 38.0 from 61.4 in September.
Unemployment - The number of claims for new unemployment benefits grew from 463,000 during the week ended October 11, to 479,000 for each of the following weeks. The 4-week moving average was slightly lower at 475,500. To date, roughly 750,000 jobs have been cut during 2008.
Which Way Will Rates Move in November?
Most economists and industry heads are predicting continued stormy weather ahead for the financial markets as well as for consumer incomes and spending. For instance, Lynn Franco, director of the Conference Board Consumer Research Center commented this month, "The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers' confidence...Looking ahead, consumers are extremely pessimistic, and a significantly larger proportion than last month foresees business and labor market conditions worsening. Their earnings outlook, as well as inflation outlook, is also more pessimistic, and this news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season."
Because businesses and individuals are increasingly feeling the pinch of tightened credit markets and constricted disposable income, the pressure on mortgage backed securities investors has also been to sell, forcing mortgage rates higher. Unfortunately, with little positive economic indicators expected soon, mortgage interest rates may continue on their upward climb into November.
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