Mortgage markets are conflicted about the U.S. economy and the confusion is impacting home buyers. If you've recently tried to lock a mortgage rate, you've probably experienced it personally.
On one hand, reports of plunging sales suggest that the economy is slowing more quickly than expected.
This is recessionary and tends to be good for mortgage rates. So, some days, rates have been down.
On the other hand, some pundits (including a Federal Reserve official) are saying that recent Fed cuts may stoke inflation in the second half of 2008.
This is inflationary and tends to be bad for mortgage rates. So, some days, rates have been up.
Neither side is wrong -- 2008 will likely show signs of both recession and inflation at some point. Markets are waking up to this fact.
And this is why mortgage rates have changed so much from day-to-day -- investors can't agree upon exactly when the Fed rate cuts will work their way through the economy. With each "target date" change, mortgage rates change.
This week, expect more of the same volatility with January's Retail Sales data being released and five Fed speakers (including Fed Chairman Ben Bernanke) stumping.
The spoken word of the Fed Chief can be a very powerful influence on markets.
If you've recently gone under contract for a home, you may find peace of mind by concentrating on a mortgage payment as opposed to a mortgage rate; rates could change multiple times each day and timing a market-bottom can be futile.
(Image courtesy: CNN)
