Mortgage Rates Tick Up, But Remain Low

Mortgage rates have started to move higher as 2010 comes towards an end.

It has been stated in this column before that when the economy improves, money goes into the stock market and gets moved out of the bond markets. The end result is that interest rates on Treasury bonds move higher when the stock market goes higher.

The yield on the 10-Year Treasury yield finished over 3% for the first time since May of 2010. Most economists expect the yield to hover around present levels for the near and intermediate future. Some economists think the yield may dip well into 2% yield range in the next year or two.

The November employment report released on December 3, 2010 was dismal. The unemployment rate went higher, from 9.6% to 9.8%. The report showed a net non-farm payroll increase of a paltry 39,000.

Private sector job creation remains 6.31% below the peak employment numbers in three years ago, December 2007. Private sector job creation was up .05% month over month.

There is simply nothing pretty about the job numbers. The surprise was the reaction in the bond and stock markets. One would have expected the stock market to take a dive and for bonds to shine. When the day’s dust settled, the stock markets were up modestly, and the 10-Year Treasuries sold off to finish above 3%.

The disappointing jobs numbers came after a week of relatively positive news on the economy. Manufacturing was stronger then expected. Retail sales over the start of the holiday season were also better then expected. Car sales seem to be on the rebound.

But weakness still abounds in the housing markets. In the Standard and Poors, Case-Shiller report of the third-quarter results on the nation’s housing prices showed a national decline in prices, year over year, of 2%.

Clearly the housing markets nationally and, to a lesser extent, locally are still showing signs of softness in sales and valuations. Housing has to stabilize for the economy to be strong over the long run.

One of the more positive reports released in the last couple of years was on consumer confidence. The conference Board’s confidence index increased to 54.1% in November from a revised 49.9% reading in November.

Goldman Sachs revised upward its forecast of the Gross National Product in a December report. In the report, Goldman calls for a GNP of 2.5% in 2011, and for the GNP to grow towards 4% annually towards the end of 2012. At the same time, Goldman is calling for low inflation and for no interest rate increases by the Federal Reserve Bank through 2012.

Hopefully the November employment numbers are more of an aberration then the start of a weaker trend. Next month’s jobs report will be a good barometer for the near term economic forecast.

Bill Starrels lives in Georgetown and is a mortgage loan officer. Bill can be reached at 703 625 7355 or email at bill.starrels@gmail.com