Mortgage rates have eased slightly after their steep run up over the past three weeks. Thirty year mortgage rates now stand at 5.625% after peaking at 5.75%. Rates could have been pressured above 6% had it not been for the stalled rally on Wall Street that has seen stock prices fall modestly over the past couple of weeks. Investors are beginning to question whether the economy will pull out of the recession as soon as once thought.
Continued weakness in the job market coupled with higher interest rates, a lackluster housing report showing weaker than expected existing home sales and a somber assessment by the World Bank of the world economy’s short-term prospects have combined to send stocks to their lowest levels in three weeks. This has helped renew interest in government bonds as evidenced by Tuesday’s well received auction of $40 billion in two year notes. It was weak demand for government bonds three weeks ago that sent mortgage rates soaring.
The Federal Reserve’s Open Market Committee began its two day meeting on Tuesday to discuss monetary policy and the direction of interest rates. It is almost universally believed that the Fed will leave rates unchanged at their current level of nearly zero. What investors will be most interested in when the Fed adjourns on Wednesday will be their statement which often reveals far more about the future direction of rates than any current action it may take. Interestingly, Ben Bernanke is coming up for reconfirmation as Chairman of the Federal Reserve and is likely to face some tough questions from members of Congress on how well he has handled the economic crisis thus far.
As I mentioned before, existing home sales rose 2.4% to an annualized rate of 4.77 million units in May from 4.66 million units in April. Sounds positive but analysts had expected a rise to 4.82 million units. Adding insult to injury – median home prices for May fell 16.8% over last year at this time. This contrasts last week’s report that housing starts for May surged some 17%. The mixed signals we are getting from the housing markets have been more positive than negative lately and are a sign the market is feeling for the bottom nationally. Locally, I still contend that bottom was reached back in February. I am seeing rising demand from first-time homebuyers and out of state condo purchasers in addition to those who had been on the fence and are now jumping into the market as rates begin to rise and home prices stabilize. This is, in my opinion and the opinion of economists, the best time in twenty five years to purchase a home and many it appears are starting to get that message.