Tuesday, May 31, 2011

Mortgage Rates Reach Low for Year


Many factors were favorable for mortgage rates this week. Weaker than expected economic data, strong results for the Treasury auctions, and renewed concerns about weaker European countries all helped mortgage rates end the week at the lowest levels of the year.


All of the major economic data released during the week was weaker than expected. First quarter Gross Domestic Product (GDP), the broadest measure of economic growth, was unchanged at 1.8%. Most investors expected the figures to be revised higher to at least 2.0%. April Durable Orders fell 4% from March, which was the largest monthly decline since October 2010. Weekly Jobless Claims unexpectedly increased. These measures suggest reduced inflationary pressure, which is good for mortgage rates. In addition, the Core PCE price index confirmed that inflation remains very low.

Uncertainty in Europe also helped US mortgage rates improve. There is no clear solution to the debt problems of Greece, and the parties involved in aiding Greece disagree on what approach to take. European Central Bank (ECB) officials stated that Greece must adopt tough austerity measures to remain a member of the Euro zone. Greece has already sharply reduced spending, though, and further cuts will be difficult politically, increasing the likelihood of a default on Greek government debt. Investors also grew more concerned about similar problems in Spain and Portugal. Spending cuts or debt defaults are expected to lead to slower global economic growth.

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