Last Week's Financial Review ~by Chris Hutchens
"IT'S A CRUEL, CRUEL SUMMER...LEAVING ME HERE ON MY OWN." From 80's band Bananarama And that's exactly what potential home buyers and refinancers who stay on the sidelines might be singing.
Although home loan rates are very attractive now, the picture could be quite different as some inflationary factors will likely come to light heading into summer. Oil prices may be on the rise as we approach the summer driving season, some of the economic stimulus might begin to take hold, corporate cost-cutting measures could start to bear fruit, and, perhaps most importantly, the Fed will no longer be a buyer of Mortgage Bonds. These are all ingredients in a recipe that could very easily result in significantly higher interest rates this summer...so if you have been thinking about acting on a home loan, do not delay.
But with no hint of inflation in the current market, why would Bond traders be fearful now? Are they listening to strange voices and what did they say? The forward looking markets got an earful from Fed Governor Frederic Mishkin last week...and he's not the only one. Mishkin said that "inflation could come to the forefront, given all of the government programs", and "once the economy recovers, liquidity must be taken out of the markets"...meaning the Fed may need to rapidly hike rates down the road, to control the potential of inflation.
In other news, Stocks around the globe faced heavy selling pressure last week on renewed fears of the deepening worldwide economic slump...and this despite better than expected earnings from Google and IBM, as well as GE meeting earnings expectations. Even with the downward pressure on Stocks which can sometimes benefit Bonds, the mention of the "I" word left its mark, with home loan rates ending the week around .25% higher than where they began.