And indeed, Bonds and home loan rates definitely showed some serious energy and persistence this week, despite some serious headwinds, including additional supply flooding the market from this week's big Treasury auctions.
The Treasury unloaded an enormous supply of paper onto the markets this week...and remember, anytime there is more supply than demand, it means prices will naturally decline. And when Bonds are concerned, when prices decline, home loan rates go up. The heavy supply hitting the market caused some wild volatility for rates midweek, but overall home loan rates managed to find some improvement by the end of the week. However, it won't be long before another enormous supply of Treasuries comes on the market. In just two weeks, we'll be looking at a fresh round of auctions...and the size of those auctions will be announced on August 5th. This announcement date of August 5th, and the following week's auction dates of the 11th, 12th and 13th will probably have high volatility and provide a headwind for Bonds. It used to be that the dates of economic news would be circled on the calendar as the ones to watch for greater movement in Bond prices...but right now, the supply issue has become so important that it now may be the most dominant current factor in Bond pricing and home loan rates.
In other news, Advanced Gross Domestic Product (GDP) for the 2nd Quarter came in better than expected, while the 1st Quarter GDP was revised lower. GDP measures the total market value of all final goods and services produced in a country in a given year. Overall, GDP has fallen four quarters in a row for the first time since government records started in 1947. The report also showed consumer spending is down, as consumer savings increased to the highest level since 1998.
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Chart: Gross Domestic Product
However, there are continuing signs that the economy is stabilizing. First, the widely looked at Case/Shiller Home Price Index for May showed that home price declines in the 20 largest US cities appear to be moderating. This most recent report was the best reading in nearly twelve months, and the first month-over-month improvement in three years. Combining this report with the last few months improved Existing and New Home Sales Reports gives us reason to be more optimistic on housing, and a reason to feel that home prices are nearing a bottom for most of the country.
THIS MAY PRESENT A GREAT TIME TO PURCHASE A HOME, BUT BE AWARE THAT INFLATION WILL DEFINITELY PLAY A BIG ROLE IN THE DIRECTION OF HOME LOAN RATES...TO LEARN MORE, CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW.
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