Rate Update September 18, 2008
Rates are unchanged from yesterday’s levels which were sharply higher from the previous day.
After dropping close to 500 points in each of the past two days, the Dow Jones Industrial Average is trading in positive territory thanks to creative efforts on the part of the Fed to restore confidence in the financial system. This small rally in stocks is putting some pressure on the bond market which could push mortgage rates higher.
These are unprecedented times that we are living through. The Wall Street Journal published a great article today in which they summarized the current “financial disease” that we are suffering from:
“Fed and Treasury officials have identified the disease. It’s called deleveraging, or the unwinding of debt. During the credit boom, financial institutions and American households took on too much debt. Between 2002 and 2006, household borrowing grew at an average annual rate of 11%, far outpacing overall economic growth. Borrowing by financial institutions grew by a 10% annualized rate. Now many of those borrowers can’t pay back the loans, a problem that is exacerbated by the collapse in housing prices. They need to reduce their dependence on borrowed money, a painful and drawn-out process that can choke off credit and economic growth.”
Current Outlook: long-term floating, near-term locking