Dennis' Mortgage Blog

With no domestic economic news and no corporate earnings reports investors latched onto more lousy news in Europe today as their impetus for where to invest, and not invest.  The result was good for those looking for a mortgage and not so good for those invested in stocks in their private portfolios or their 401(k) retirement accounts.

Over the weekend Spanish voters in local election gave a rousing defeat to the ruling Socialist party and elected candidates from the opposition conservative party.  With national elections coming in one year the rout in the weekend elections puts into doubt the fiscal policies and proposals of the government.  Spain has an unemployment rate over 20% that leads Europe and its national debt is of crisis proportions.  Investors are concerned that Spain's troubles can pull down one or more European Economic Community members.

Joining Spain in causing concern for investors and bankers worldwide are Italy and Greece who had their debt, or bonds issued by their governments, further degraded by credit agencies.  Both countries bonds are now essentially rated at junk bond status.  With Ireland and Portugal having similar debt-to-GDP ratios and huge deficits primarily based on interest payments and entitlements, Europe is setting up like a series of dominoes.   Who to bail out, whether to bail out and how to bail out are questions being asked by the International Monetary Fund, the U.S. Treasury and Obama Administration and their counterparts in London, Berlin and Paris. 

Right off the opening bell this morning U.S. stocks dropped as investors worried about the continuing economic crisis in Europe sold their equities (stocks) and began purchasing bonds.  At the end of the trading day the Dow Jones was down 130 points, over 1%, and U.S. Treasury yields were lower as investors ran to the safety, for now, of the U.S. government.

Initially mortgages also benefited from the run by investors as Mortgage Backed Securities (MBS) opened significantly higher than Friday's close (meaning lower rates). As the day wore on however investors sold off on MBS and we end the day with rates about where they were Friday.  Those who locked early in the day benefited from the quick rally.

Looking ahead Europe is not going to suddenly recover, and if one of the dominoes falls it will take others with it.  Absent any terrific domestic economic news, mortgage rates in America will be responding significantly to the European debt and economic woes.  As your 401(k) suffers from European governments' decades of entitlements and excessive spending, your mortgage rate will benefit.

Mortgage rates continue to remain low for the time being.  Call or email Dennis today to determine your purchasing power for a new home loan or monthly savings from a refinance.  Direct dial 562-472-1118