Why the Recession is the Buyer's Friend

After a weak holiday shopping season, annual retail sales declined in 2008.

It marks the first annual Retail Sales decline since the government started tracking the data 40 years ago.

It also gives credence to the notion that the U.S. economy is suffering through a deeper recession that previously thought. A pullback in spending -- especially during the shopping-heavy month of December -- highlights the cautious nature of today's American shoppers.

And in a strange sort of way, all of this may end up being good news for spring home buyers.

Because Retail Sales are reflective of consumer spending, a dramatic pullback helps to keep the economy in slow gear, countering the inflationary impact of government stimulus and direct intervention. Inflation, you'll remember, causes mortgage rates to rise. Its absence, therefore, helps to keep mortgage rates low.

In addition, it's earnings season on Wall Street and weak corporate guidance has spurred a 6-day decline in the Dow Jones Industrial Average. As dollars leave the stock market, investors are parking them in the safer world of bonds. This includes mortgage bonds, of course, which further pressures rates lower. And of course, lower rates make housing, at any price more affordable for any buyer.

As a result, economic weakness -- to a point -- can be the friend of a person in need of a new home loan. For active home buyers or people entering the market this spring, therefore, the timing may be just right, with affordable prices in our market combining with these lower rates to make the potential housing cost better than it will probably be in the future as the economy recovers spurring sales and reducing inventory.

(Image courtesy: The Wall Street Journal Online)

How Mortgage Rates Responded To The "No" Vote On The Bailout Bill

Monday afternoon, the U.S. House of Representatives defeated the $700 billion "Bailout Bill", surprising Wall Street and the world.

The Dow Jones Industrial Average responded by falling 777.68 points -- its largest one-day loss in history and, this morning, every newspaper in America is covering the story as front page news.

Lost in the coverage, however, is how the "No" vote created a terrific opportunity for home buyers and mortgage rate shoppers.

Yesterday, as money fled the tanking stock market, most of it ended up getting parked in the relative safety of government-backed bonds which includes, of course, the mortgage bonds. This rising demand for mortgage bonds caused rates to fall, improving home affordability.

To investors, stock markets represent risk and bond markets represent safety. So, when market sentiment changes, as it did yesterday, Wall Street players often shift their dollars from one forum to the other. This is why yesterday's stock sell-off was good news for mortgage rate shoppers -- the added demand for "safe" securities drove down rates.

Conforming mortgage rates were lower by about an eighth-percent Monday.

Now, today, mortgage rates are opening flat, suggesting that markets are in a Wait-and-See Mode. Wall Streets knows that the defeated bill will re-emerge later this week and, when it does, expect traders to respond accordingly.

If the new-look bill is viewed as favorable to U.S. businesses without harming taxpayers, expect stock markets to improve and mortgage rates to rise. If the bill fails to accomplish that goal, however, expect mortgage rates to improve.

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