Mortgage Rate Update July 26, 2011

Mortgage rates are unchanged this morning.

We’re one day closer to the debt-ceiling being reached and on the surface it appears as if lawmakers are no closer to reaching a solution.  The implication of a US default on interest rates is still unclear.  On the one hand, if the “safest” debt security in the world defaulted then you would assume the value of that asset would fall, pushing rates higher.  Because all other debt securities, including mortgage-backed bonds, are perceived to be “riskier” than US Treasury securities then we could assume that rates would rise.

However, whenever there is uncertainty in the financial markets it is common for a “flight-to-safety” to take place which pushes rates lower.  Since a US default would create a lot of uncertainty you could also make the case for rates benefiting.  I still believe a solution will be reached prior to the deadline and given that the two sides are still far apart it will likely be a short-term solution.

There was some other financial data out today.  Notably the S&P Case-Shiller Home Price Index showed a month-to-month 1% improvement in home prices for the nations 20 largest markets.  However, on a year-over-year basis prices declined by 4.5%.  In Portland, home prices declined by a small margin.  According to the index home prices are currently at the lowest level since November of 2004.

Amidst all the uncertainty regarding the debt-ceiling the US Treasury will auction $35 billion in 2-year notes today.

Current Outlook:  locking bias