A run of good economic data continued this week, maintaining the upward pressure on long-term interest rates that began in November.
The National Association of Realtors reported a 3.5% increase in pending sales in November, although still 9% below 2009. New claims for unemployment insurance fell to the best level since 2008, a little more than 400,000 weekly. The Chicago purchasing managers’ survey of manufacturing (“ISM”) jumped in December, possibly indicating growing strength in the national numbers due on Monday. On the weak side: the leading measure of consumer confidence slid in December, and the October Case/Shiller report of home prices was weaker than any expected.
Respectable forecasters (notably Goldman Sachs) have upped their GDP forecasts for 2011 from the 2.5%-3.0% range to 3.5%+. If so, and if there is pull-through to job creation, then mortgage rates are in for a rough time. Supply/demand factors are not helpful to us: the Fed’s QE2 seems a bust, and the Fed is allowing its MBS portfolio to run off (not re-buying as loans prepay), and Fannie and Freddie will begin a gradual reduction in their holdings in 2011 (10% per year forward).
However, right there the forecasts by stock-market and business economists diverge from those of us in housing and credit. It is extremely difficult to imagine a strong, general recovery while mortgage rates rise and housing continues to deteriorate, creating new financial-market losses, and credit remains nearly non-existent except for the largest corporate borrowers.
Which group turns out to be correct... that will tell the tale of mortgage rates in 2011.
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