Outsized Economic Stimulus Packages can Cause Long Term Harm to Mortgage Rates


After a strong start Monday and Tuesday, mortgage markets suffered alongside stock markets in the latter half of last week, leaving mortgage rates higher on the week overall.  Marketeconomic-stimul_12324329481 losses were especially steep Friday and mortgage rates headed into the long weekend on a strong uptick.  Regardless, the reasons that mortgage rates rose last week are ancient history, in most respects.  Today, the new presidential administration begins and economic expectations reset. Mortgage bond traders are now looking at Capitol Hill and wondering what the pending stimulus package will look like, and how many dollars will it include.  This is an important time for home buyers and rate shoppers, too, because stimulus is generally believed to be harmful to mortgage markets. This is for two reasons:

  1. Stimulus draws money to the stock market from the bond market, pressuring bond prices down and, therefore, mortgage rates up.
  2. Stimulus requires the “printing of money” which devalues the U.S. Dollar and everything denominated in it. This includes mortgage bonds and rates respond by rising.

In other words, as the scope of the stimulus package increases, it becomes more likely that mortgage rates will rise in 2009.  Aside from Beltway Politics and commentary, there isn’t much to impact mortgage markets this week. We’ll see the latest earnings from a handful of financial firms and tech bellwethers including Google, Microsoft and IBM. And, on Thursday, we’ll be treated to some housing data from December.  But, with expectations set so terribly low for everything economic, markets will likely shrug off any data that doesn’t scream that the recession is over. Instead, be on alert to lock a rate. In a changing political environment, mortgage rates can move quickly and it’s best to be prepared.

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  1. Mortgage rates are the lowest in the history of the country. If you’re stupid enough not to lock the rate, then you deserve to keep paying thousands more each year. Be greedy and get nothing. Be assertive and completely change your financial situation. Rates are on the rise. If you can lock in, you better do it now and don’t get so ham strung on the cost. Don’t pay to much obviously, but 500 bucks here or there doesn’t make up the tens of thousands you loose while the train leaves the station.

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