|
Through the last four weeks, fixed mortgage interest rates have ridden up a bump, and then stabilized.
The high prices of gasoline and how they affect vacations can be found everywhere from the newspaper to the comic pages, along with the news on both the financial and cable channels. A person in Germany set fire to his BMW because gas in his country was equal to $9.40 per gallon. People are using their "tax stimulus" checks on gasoline. Airline companies are adding fees left and right for all kinds of silly things.
People who go to work still have to buy gasoline.
The dollar is weak compared to other foreign currencies. Because of that, the Fed cannot get us out of any future economic slowdown by reducing rates, as they have been doing for a while (and in past years). Lower interest rates would mean fewer dollars invested here, so the dollar becomes worth even less.
The stock market hit a two-year low last week and is about twenty percent below its highs. It's also supposed to predict the economy by six months.
Wages have to grow in order for America to maintain pace with the additional money they are spending on staples. Unfortunately, that means wage and price inflation, something we have fought successfully since 1980.
Consumer confidence hit its third lowest level in its history (since 1952). Only April and May of 1980 were worse, when we were recovering from some very high inflation.
People are spending money on things they have to, so will spend less on houses. This causes less demand and lower prices, and lower loans to finance those homes. Lower prices mean lower values. Lower values means lower refinances, not to mention all of those taken out of the market by the lack of sub-prime lending and tighter lending policies.
All this helps indicate the economy is slowing down, which is usually good for interest rates (they go down). However, inflation throws a monkey wrench into the mix.
While no one can guarantee economic or interest rate predictions, we think mortgage interest rates should stabilize at this level, and then go up. That is how we see thing playing out, despite being counter-intuitive to recent history.
|
