Michigan Mortgage Market Update – The Economy is a State of Mind

I can’t speak for anybody else, but business is booming in my office right now! It’s a major twist since we have been slow to moderately slow for the past 18 months. We are financing people buying houses like crazy right now and some of that can certainly be attributed to the current home buyer tax credit. I sure hope that thing gets renewed! The bottom line is that it seems like the housing market has really picked up and that is great news for everyone in Southeastern Michigan! I am seeing buyers lose houses that have gotten multiple offers and that has not been typical for the past couple of years. Also, most homes are selling within a narrow range around the asking price of about 5% within our typical market area of Oakland, Macomb and Wayne Counties.

Mortgage rates have continued to stay very low with rates this year averaging between 4.875 and 5.250% and that has added fuel to home buying activity. Over the past couple weeks most of the economic news has been pretty benign – meaning it has had little impact on interest rates. Industrial production reported on Monday, March 15, was up .1% and February Housing Starts were down 5.9% both pretty much in line with expectations. The Federal Reserve met last week and announced that they would leave the Federal Funds rate unchanged for the foreseeable future. Later in the week the Producer Price Index and the Consumer Price Index (both measures of inflation) were pretty much flat. This is good news as inflation causes interest rates to rise. Arguably the most important factor affecting interest rates right now is excessive government borrowing. In order to finance the HUGE government deficit the fed’s have been issuing records amounts of new debt in the form of treasury bonds and notes. Today the federal government is selling a record $42 billion of 5 year notes and demand for this new debt has been low as there is a limit to how much US debt the world is willing and able to hold. The federal government needs to get a handle on this deficit spending or we are going to be in for significantly higher interest rates in the near future! If you want to keep up with news items that impact mortgage rates on a daily basis please read our Daily Market Advisory.

Overall, it seems like economic activity is starting to improve in my little corner of the world. Consumer spending and housing activity are the two biggest components impacting the economy and both have been on the mend this year. The economy is really just a reflection of the state of mind of consumers, so, let’s all think positively and encourage those around us to do the same and we’ll see the economy getting better which will in turn improve business profits which will create new jobs and more spending and things will continue to get back to “normal.”