If you are watching the stock market and mortgage interest rates to time your home buying efforts the following rule of thumb may help you.
In general the rule of thumb is that as the stock market goes down (money is pulled out of the stock market) mortgage interest rates go down (money pulled from the stock market is used to purchase treasury bills).
Last week, the week of January 18, 2010, was no different as Conforming and FHA mortgage rates improved as the stock market fell. The stock market fell based on the combination of an announcement that China will take steps to slow its economic growth and President Obama’s proposed new restrictions on the activities of financial institutions.
As a result of national interest rates going down so did Arizona mortgage rates.
Since shedding 300 basis points in December, mortgage bond pricing has recovered a bit more than half of those losses. It’s helping with home affordability and opening new refinance opportunities in Mesa, Gilbert and other communities located in the east valley.
This week, though, mortgage rates could rise back up. There’s a lot going on.
First, on Monday, the December Existing Homes Sales report will be released. The report is expected to be extremely weak as compared to November. This is because of a combination of factors including:
- The initial tax credit expiration date of November 30, 2009
- Sharply rising mortgage rates throughout the month of December
- A general slowdown from the holidays and from the weather
Therefore, don’t be surprised by the newspaper headlines you see Tuesday morning.
Other data this week includes the Case-Shiller Index – a measure of home prices nationwide — and the New Home Sales report. The Case-Shiller Index has registered mild home price improvement over the past 8 months and its latest report is expected to show the same. New Home Sales should be similarly strong.
But, the biggest news of the week is the first Federal Open Market Committee meeting of 2010.
The Fed meets Tuesday and Wednesday this week and Wall Street will be watching closely. The Fed is not expected to change the Fed Funds Rate from its current target range of 0.000-0.250 percent, so, instead, markets will watching for the Fed’s post-meeting press release.
What the Fed says about the economy will be much more important that what it specifically does about the economy for now. If the Fed says the economy is growing as expected, look for mortgage rates to rise. Conversely, if the Fed says the economy is at risk, expect mortgage rates to fall.
The safest rate lock strategy this week is to lock your mortgage rate before the Fed’s 2:15 PM ET adjournment Wednesday. Rates will be bouncy all week, but once the Fed’s press release hits the wires, it’s anyone’s guess what will happen.
