New Worries in the Mortgage Market
RateEmpire.com
The situation of the mortgage market is presently indicating inflation and it seems that the economic growth may get hampered due to the worsening condition of the housing and credit sector. And moreover, there is a slight bump up in unemployment due to this.
In the business sector, it is expected that the growth may slow down due to the weak Gross Domestic Product (GDP), which is coming between 1.8% and 2.5%. This fall is happening due to numerous factors. The first reason is the reduced availability of the jumbo and subprime mortgages. Besides this there is weaker housing data and rising oil prices also to be blamed.
However, the credit crisis that is going on since few months has affected not only the general public but also the companies and the creditworthy borrowers. As the credit crunch has made the borrowing more costly and difficult. The worst disaster has taken place in the market for subprime home loans that are made to people with spotty credit histories. And this worsening housing and credit situation may compelle the people to stop spending and that may slow down the economic growth more and more.
Next, there is the unemployment rate though, is expected to rise and settle down between 4.8% and 4.9% by next year, which is low according to historical standards. The unemployment rate at present stands at 4.7%, whereas it was 4.6%, the last year. It is estimated that the rate may settle down to 4.75% by next year.
Among the other sectors, energy prices though are in a surging situation, but recently had no major inflation problem. Last week, the oil prices hit a record high of $98.62 a barrel. They have ebbed a bit and hanging around over $96 per barrel. On the other, gasoline prices have even topped $3 a gallon.
However, although there are worries about the growing credit crisis, but it seems that the treasury prices were not much affected, as the last closing showed mixed results.
The benchmark 10-year Treasury note rose 7/32 to 101 18/32 with a yield of 4.05% down from 4.07%, the previous day. The 30-year long bond closed at 108 14/32 with a yield of 4.48%, almost unchanged from the previous closing. Even the 2-year note closed unchanged at 100 27/32 with a yield of 3.16%.
But selling in after hours trade resulted in higher yields of some of them, with the benchmark yield rising to 4.09%. Although the yield on 30-year Treasury note remained unchanged but the 2-year yield rose to 3.19% from 3.16%.
According to other updates, the double rate cut by the Fed totaling 0.75% points in September and October for a time, re-established confidence and liquidity to capital market, that was badly shaken by defaults on mortgage debt. But however, recent disclosure by many banks of billions of dollars in new losses from exposure to low quality mortgages has left the investors dispirited again.
Besides the credit crisis, housing slump and unemployment rates are causing inflation in the mortgage market and the overall economy. The mortgage market also got affected due to some unverified news that Freddie Mac, nations number 2 buyer and guarantor of home loans, posted a $2 billion quarterly loss ever and the Countrywide Financial Corporation, the largest mortgage lender will be forced to bankruptcy. All this increased the tension in the mortgage market, all of a sudden.
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