Weekly Information 10/11

The combination of weak economic news and anticipation of resumed QE by the Fed has taken the 10-year T-note to 2.34% (as high as 2.70% in the last weeks) and is pushing mortgage rates toward 4.00%. Middling numbers like the ISM service-sector rise from 51.5 in August to 53.2 in September, and today’s meager gain of 67,000 private-sector jobs in September are not double-dip indicators. However, we’re running a $1.5 trillion deficit, one-third of it due to tax revenue lost in the Great Recession, and we must get the economy going fast enough to produce more revenue. The bond and mortgage markets are hugely overbought, overweighting QE2 to be announced on November 3 (the Fed meets the day after Election Day). We do not know the magnitude or duration of QE2; the program faces very substantial opposition here and abroad, mostly ignorant here, and fearful there; and since QE theory has never been tried in actual, sustained practice, we cannot know its effect. Clients and Realtors should find hope in the effort, but should also be warned of the instability and unpredictability of this situation. Those who wish to gamble should understand the size of the risk, and those who wish to lock should understand that 30-year mortgages can drop into the 3s without an ability to re-set the lock. The table is tilted lower, but it’s only two inches from the floor.