Mortgage Rates Rise – While mortgage rates have certainly edged higher since the late days of July, there are at least two major reasons to believe they are unlikely to move significantly higher from current levels, a least in the near-term.
(1) The European debt crisis is far from resolved and expectations the European Central Bank will intervene in a major way at their upcoming September 6th meeting is likely to prove little more than an exercise in wishful thinking. If this assessment proves accurate, global credit market investors will likely register their sharp disappointment by driving huge amounts of capital back into U.S. dollar denominated assets like Treasury debt obligations and agency eligible mortgage-backed securities, and this is good news for the prospects of steady to perhaps fractionally lower mortgage interest rates onMain Street,USA.
(2) While some economic indicators have shown marginal improvement, others continue to indicate the economy is far, far away from achieving “escape velocity” from the gravitational pull of the Great Recession. It is possible that the lack of additional cash injections into the economy from the Fed together with the stalemate in Washington over taxes and spending is poised to take a substantial toll on the stock markets. My models are flashing an increasing number of signals suggesting the Dow is very vulnerable to a profit-taking sell-off this week. Without an obvious source of strength current valuations will be increasingly hard to justify, and that is a condition almost sure to start building a “take-the-money-and-run” thought process in the mind of previously big and bold stock investors.