As Long as Retail Sales Continue to Rebound, Rates Will Continue to Worsen

Consumer Spending is Putting Recession in the Rear View Mirror

If consumer spending is a keystone element in the U.S. economic recovery, a full-on rebound is likely underway. According to the numbers, that is.

Tuesday, the Census Bureau released its national January Retail Sales figures and, for the 7th straight month, the data surpassed expectations. Last month’s retail figures climbed 0.3% as total sales receipts reached an all-time high.

It’s good news for the economy which is scratching back after a prolonged recession, but decidedly bad news for people in want of a mortgage across the state of Iowa. This includes home buyers and would-be refinancers.

Because consumer spending accounts for the majority of the U.S. economy, Retail Sales growth means more economic growth and that draws Wall Street’s dollars toward riskier investments, including equities, at the expense of safer investments such as mortgage-backed bonds.

Good For Economy? Bad for Mortgage Rates.

On the heels of the Retail Sales report’s release, bond prices are falling this morning. As a consequence, mortgage rates are rising. It’s the same pattern we’ve seen since mid-November — “good news” about the economy sparks a stock market frenzy, causing mortgage bonds to rise.

A sampling of other recent good-for-the-economy stories include:

Corporate earnings are rising quickly (Marketwatch)
Existing Home Sales up 12% month-over-month (CNN Money)
The Fed says the economy looks “brighter” (Bloomberg)

The days of 4 percent, 30-year fixed rate mortgages are over. 5 percent is the new market benchmark. Unless the economy keeps showing strength. Then, that number may rise to six percent. Naturally, this is the doom-and-gloom look on the market. I’d like to consider myself a little more “blue sky”.

If you’re thinking of buying or refinancing a home, consider how rising rates will hit your budget. You may want to take that next step sooner than you had planned — if only to protect your monthly payments. If you’d like to look at what you could lock in, feel free to reach out to me. My contact information is on the right hand side of this page!