Over the weekend, I was reflecting about what a great
position the real estate market is in right now, and all those involved with the market. It’s such an exciting time to be in the
mortgage industry, and especially to be in the market for real estate, all
things are working in our favor: Interest rates are extremely low, the housing
market is gaining speed fast, and most local economies are outstanding! Basically everyone is
employed and making more money than ever, we can borrow money VERY cheap, and
our homes are appreciating. We really don’t have anything to complain about
right now, and I haven’t been able to quit smiling.
So what happened last week, and what can we expect this
week? The first question is easy to answer, and the second…well, it’s not so
easy (I’ve really got to get a crystal ball). Interest rates today are down an
eighth of a percent from a week ago, this is after a mid week spike in rates.
This coming week is fairly quiet as far as economic reports
are concerned with only one report scheduled for the week-Tuesday morning, and
then the Federal Open Market Committee (FOMC) meeting on Tuesday afternoon, so
as can be expected Tuesday will likely yield the most movement in rates.
Tuesday morning I’ll be watching for the Employee Production and Cost data.
Though this report will not directly affect interest rates, it is believed that
high employee productivity will allow the economy to grow without fears about
inflation. Analysts are expecting to see a 2.0% increase in employee
production, a higher than expected reading could strengthen bonds and lower
rates, but until we see the results of the FOMC meeting I don’t expect major
movement in interest rates.
By far the biggest event of this week will be the Federal
Open Market Committee meeting on Tuesday afternoon. The meeting isn’t likely to
bring about any change to the key interest rates, and the results of the
meeting itself doesn’t usually result in market movement since the results of
the meeting are usually known before hand, but it is the commentary at the
conclusion of the meeting that can cause the movement in the market. Bond
traders will be following the post meeting statement very closely. They’ll be
listening for any indication of rate hikes in the future. If that is the case,
then it will be believed that inflation is still a concern which could lead to
weaker bonds and higher rates; if no rate hikes are mentioned then it is
believed that inflation is not as big a concern as once thought and should lead
to stronger bonds and in turn lower interest rates.
In summary I think we have the best chance of
seeing significant interest rate movement on Tuesday after the FOMC meeting,
the rest of the week most interest rate movement will be related to stock gains
and losses. If major stock market indexes continue their downward trend,
investor will move their money to bonds as a safe haven which should strengthen
bonds and bring rates down; but if stocks rally investors will go back to
stocks which will weaken bonds and could drive interest rates up.
