2011 was a year full of surprises for the financial markets, and the bond market was no exception. By taking a look at the Fannie Mae 30 year 4% bond chart, you will see a great deal of volatility and market movement. To help this graph make sense, you must consider that as the trend moves higher interest rates are dropping lower. Therefore, as the market moved higher in July and August, mortgage rates were falling.
The European Crisis Rocks the Markets in 2011
Although we started 2011 with interest rates making a strong move higher, they reversed course and fell sharply in July and August. This move was largely influenced by the turmoil brewing at the time in Greece and subsequently supported with deteriorating financial troubles in Italy, Portugal, Spain and Ireland.
Adding to the volatility of the markets in 2011, several Middle Eastern countries also faced rebellion from their citizens. In the cases of Libya, Egypt and Syria, each of their leaders was forcibly removed from their positions. As European nations pull back on entitlement spending, we anticipate increased tension and continued dissatisfaction with their leaders.
Continued Volatility and QE3 in 2012?
As we move into 2012, there is still a great deal of uncertainty in the financial markets. Here in the USA, we are still facing a depressed housing market, stagnant job growth and an uncertain political future. Abroad, there is no solution in sight for the European debt crisis, not to mention that many Euro countries are now feeling a slowing in economic growth and facing an increased likelihood of falling into a double dip recession. Should this trend continue, these forces will likely help keep mortgage interest rates low for the foreseeable future.
One of the major potential market moving factors in 2012 could also be Iran. Given the seemingly deteriorating relationship the United States has with Iran, and the inevitable impact to the price we will pay at the gas pump, this may be a bit of a wild card this next year. Should the problem escalate, we may find ourselves paying higher interest rates for home loans as well.
Also adding to the volatility of 2012 is the growing chatter about QE3. Should this happen, many expect there to be an inclusion of further Federal Reserve purchases of mortgage backed securities. Given that further Fed purchases ofmortgage debt, this will help to hold mortgage rates low.
Although it is impossible to accurately predict the direction and future of interest rates, it is safe to say that there is a lot of uncertainty that will likely make for another interesting year in 2012. We feel that rates will likely hold low, quite possibly move lower than they currently are. Some of the points that would change our convictions would be if the stock market makes a strong movement higher, or if the Fed stops purchasing mortgage backed securities.
If you are not yet on our interest rate watch program that will let you know when you should be considering a no-feemortgage refinance, call us immediately to inquire about the program. If you are eligible, you may be able to save a great deal of money on your home loan or overall consumer debts. Also, for a more detailed report on our predictions for 2012, call my office after January 5th. We will have our detailed predictions for 2012 complete.