Davo
Well-known member
This is not looking great for the real estate industry as a whole. We still have a lot of inventory (way more than normal) and there are not a ton of people buying homes. I think the general fear of what is going on with jobs etc is the major issue. Any way, here's what we just got from our mortgage company.
Tax Deal Pushes Mortgage Rates Higher
At the start of the week it looked like mortgage rates might reverse some of their recent increases. Tuesday's announcement that President Obama reached an agreement with Republican leaders on a tax package was very unfavorable for mortgage rates, however, and they rose sharply following the news. Despite strong demand for the Treasury auctions later in the week, mortgage rates ended the week at the highest levels since June.
While investors generally expected an extension of the Bush era tax rates for all income levels, the proposed tax deal includes additional spending measures that were more of a surprise. The plan includes a one year payroll tax reduction and an extension of unemployment benefits for the long-term unemployed. As a result, estimates for the size of the tax plan are significantly bigger than expected, leading to the large reaction in mortgage rates. There is some resistance to the deal, but most analysts expect the final version to be similar to the current proposal.
If passed, the proposed tax deal is expected to boost economic growth but also increase the budget deficit, both of which are negative for mortgage rates. Faster economic growth generally increases the outlook for future inflation, and higher inflation leads to higher mortgage rates. An increase in the budget deficit means the government must issue more Treasury securities to pay for the spending. As the supply of Treasuries goes up, yields must rise to attract additional investors, so mortgage rates must rise as well.
Tax Deal Pushes Mortgage Rates Higher
At the start of the week it looked like mortgage rates might reverse some of their recent increases. Tuesday's announcement that President Obama reached an agreement with Republican leaders on a tax package was very unfavorable for mortgage rates, however, and they rose sharply following the news. Despite strong demand for the Treasury auctions later in the week, mortgage rates ended the week at the highest levels since June.
While investors generally expected an extension of the Bush era tax rates for all income levels, the proposed tax deal includes additional spending measures that were more of a surprise. The plan includes a one year payroll tax reduction and an extension of unemployment benefits for the long-term unemployed. As a result, estimates for the size of the tax plan are significantly bigger than expected, leading to the large reaction in mortgage rates. There is some resistance to the deal, but most analysts expect the final version to be similar to the current proposal.
If passed, the proposed tax deal is expected to boost economic growth but also increase the budget deficit, both of which are negative for mortgage rates. Faster economic growth generally increases the outlook for future inflation, and higher inflation leads to higher mortgage rates. An increase in the budget deficit means the government must issue more Treasury securities to pay for the spending. As the supply of Treasuries goes up, yields must rise to attract additional investors, so mortgage rates must rise as well.