The holidays are fast approaching and the new year will be here before we know it. Which makes this the perfect time to look at what’s happening here in the U.S. and around the world, to see how home loan rates could be impacted in the months ahead.
Greece Is Still the Word
While an agreement was reached last year to keep Greece from going into default, confusion remains as to what the European Union should do next. And Greece isn’t the only country in Europe with economic woes: Italy and Spain are also facing debt crises of their own. To make matters worse, the EU failed to agree on the next seven-year budget for the alliance consisting of 27-member countries–the clash between rich and poor countries once again delaying a response to the debt crisis.
While finding a solution to Europe’s debt crisis is important, it’s also important to note that more pessimistic or uncertain news out of Europe could help home loan rates here in the United States, as investors could continue to see our Bonds (including Mortgage Bonds, to which home loan rates are tied) as a safe haven for their money. This is an important story to watch heading into the new year.
Ease on Down the Road
Earlier this year, the Fed began another round of Bond buying (known as Quantitative Easing or QE3) to try and stimulate the economy. The Fed announced QE3 because our economy is still struggling (especially our housing and labor markets) and inflation appeared tame.
It’s important to keep in mind that one of the goals and consequences of QE3 could be inflation. And inflation is the arch enemy of Bonds and home loan rates, as it reduces the value of fixed investments like Bonds. The concept is very simple: If inflation rises, investors in Bonds demand a higher yield to offset the lost buying power inflation imposes on a fixed payment. And as home loan rates are tied to Mortgage Bonds, this would mean home loan rates move higher. That makes inflation another key story to monitor in 2013.
Home, Home On The Cliff
A major buzzword in the media of late has been “Fiscal Cliff,” which is a term coined by Fed Chairman Ben Bernanke. What is the Fiscal Cliff and why is it significant? Essentially as we head into 2013, tax cuts for individuals and various tax breaks for businesses are due to expire, taxes pertaining to President Obama’s health care law will begin, spending cuts enacted by Congress as part of the debt ceiling deal of 2011 will go into effect, and long-term jobless benefits will expire.
The Congressional Budget Office (CBO) estimates that if all of these items occur, it could take an estimated $600 billion out of the U.S. economy in 2013, pushing the country into a recession. Our leaders continue to search for a compromise on these issues, so keep your eyes peeled for news out of Washington, as their decisions will have an impact on our economy next year.
The most important thing to remember is that no matter what the news brings in 2013, now remains a wonderful time to purchase or refinance a home and take advantage of historically low rates. If you have any questions at all about your personal situation, contact the professional who supplied you with this month’s issue of YOU Magazine. Wishing you and your family very happy holidays and a happy new y