Home loan rates finished this past week essentially where they began, near 3-year lows.
With all the chatter of a global recession and elevated fears that the U.S. will slip into a recession thanks to the recent inverted yield curve, why haven’t rates improved further? Is the bond market telling us something?
There are organizations around the globe whose sole purpose is to promote job growth, manage inflation, and promote economic stability to avoid a recession — they are the central banks of different countries. They have woken up around the world and have already started to enforce measures to promote economic growth. The European Union has already cut rates and is prepared to introduce more economic stimulus. And the US Federal Reserve — the Fed — is set to cut rates multiple times over the next few months.
These central bank rate cuts and additional stimulus serve as the opposite end of the tug of war, helping to pull economies from the brink of recession. And only time will tell if our Fed and other central banks around the globe are successful.
It could be this very reason why interest rates, including home loan rates, have not declined further. If the Fed is going to cut rates to help promote economic growth and elevate inflation, it is actually bad for long-term bonds like mortgage bonds. There is also a saying, “Don’t Fight the Fed.” If the Fed is doing things counter to promote low long-term rates, they could win the tug of war and limit how low home loan rates will go.
Bottom line: the U.S. economy continues to shine, the labor market is strong, consumer and business sentiment are near record highs, while home loan rates remain near three-year lows. The current economic environment is more like Goldilocks, rather than one that is slipping into a recession.
After a slower news week, this upcoming week could heat up a bit with a full economic calendar highlighted by the Fed’s inflation reading, Core PCE.
Inflation continues to run low as evidenced by the recent Fed minutes from the July 31 meeting. Inflation is also the driver of long-term interest rates, like home loans, so this is an important reading.
The second read on Q2 GDP will be released. A recession is defined as two quarters of negative growth. The first reading was 2.1%, which is not close to a negative reading.
The summer unofficially comes to an end in the coming days with Labor Day on September 2. The upcoming week could be on the quiet side as many get away for the final days of summer.
Reports to watch:
- Durable Orders will be released on Monday.
- From the housing sector, S&P Case Shiller will be released on Tuesday and Pending Home Sales on Thursday.
- The closely watched Consumer Confidence Index will be released on Tuesday with Consumer Sentiment on Friday.
- GDP will be delivered on Thursday.
- On Friday, the Core PCE will be released along with Personal Income and Spending.
If you or someone you know has questions about home loans, give me a call. I’d be happy to help.