Consumer Spending Has a Direct Impact on Mortgage Rates

Consumers Spend, the Economy Grows

Mortgage rates are easing lower this morning on just-released, slightly worse-than-expected Retail Sales data from December 2010.

Excluding motor vehicles and auto parts, December’s sales receipts were $1.5 billion higher from November. Analysts had expected a number north of $2 billion. Disappointing? It depends on who you are.

Despite falling short of estimates, however, December’s reading is the highest in Retail Sales history, surpassing the previous record set in July 2008, set during the recession. In addition, December’s strong numbers helped 2010’s year-over-year numbers go positive for the first time in 3 years.

Although the data is a mixed bag for Wall Street, home affordability in Ankeny is improving today.

The link between Retail Sales and home affordability may not be up-front obvious, but in a post-recession economy like ours, it’s often tight. Retail Sales is another name for “consumer spending” and consumer spending makes up more that 70% of the U.S. economy.

As Economy Grows, So Do Mortgage Rates

Investors recognize this and start chasing “risk”. It becomes a boost for the stock market, but those gains are made at the expense of “safe” asset classes which include mortgage-backed bonds. Mortgage-backed bonds are the basis for conforming and FHA mortgage rates so, as bond markets sell off, asset prices fall and rates move up.

Thankfully, rate shoppers will avoid that scenario today — at least for today. December’s Retail Sales results are a factor in the bond market’s early-day improvement. Conforming and FHA mortgage rates across the state of Iowa should be lower today.

Despite the good news, if you’re shopping for a mortgage, consider locking your rate soon. Mortgage rates are coming off a 2-week rally and look poised to reverse appear — especially with a full docket of data due for next week. As mortgage rates rise, purchasing power falls. If you’re shopping to lock an interest rate, feel free to give me a call. I’d love to help you out (all of my contact information is on the right hand side!).