July 20, 2011
Arizona Real Estate
"What we’ve got here is a failure to communicate." That famous line from the 1967 movie Cool Hand Luke certainly seems to apply to our leaders on Capitol Hill, as the debt ceiling debate rages on. Read on to learn how this could impact our economy, the mortgage industry, and home loan closings.
Last week, the political gridlock and confusion within Washington DC around the debt ceiling and budget deficit debate prompted credit ratings firm Moody’s to announce that it was reviewing US Debt for a possible downgrade. Even though Moody’s acknowledged that the chances are low for a default, they said the chances are no longer "minimal." Moody’s announcement was followed by a similar announcement from credit ratings firm Standard and Poor's, which said that a US debt default is a 50-50 chance, even if the US raises the debt ceiling. Standard and Poor’s is looking for a "credible solution" to the long-term debt problems, and in that absence, the United States’ current "AAA" credit rating could be cut.
Why is this significant? Lowering the deficit and being fiscally sound raises confidence in our debt. This would not only translate into maintaining our AAA rating, but it would reinforce the United States’ role as the reserve currency of the world or a place where investors will place their money as the ultra safe haven. This is a key factor for our continued economic recovery. To learn how a potential government shutdown could impact the mortgage industry and home loan closings, see the View article below for details. Also, call or email me if you have any questions at all. I’ll be monitoring this situation closely in the weeks ahead.
The gridlock on Capitol Hill wasn’t the only thing heating up last week. Both the core Producer Price Index (which measures inflation at the wholesale level) and the core Consumer Price Index were reported hotter than expected. Remember, inflation is the arch enemy of Bonds and home loan rates, like Kryptonite to Superman, because inflation erodes the value of the fixed return provided by a Bond, which causes home loan rates to rise. This is another area I’ll be monitoring closely in the weeks and months ahead.
The bottom line is that home loan rates still remain near some of the best levels we’ve seen this year.
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