Marc's Mortgage Matter's

Where are rates going? Bank of America expects yields to drop more heading toward 2011. Goldman Sachs expects the U.S. unemployment rate to creep back up to 10% by early 2011 from 9.6% in August and to stay around that level for most of the year. Deutsche Bank sees low rates for a while. "We remain constructive on yields and expect lower for longer with a 2 percent target for 10 year Treasuries." Slow, yet positive, growth with no inflation is primarily the reason, although European problems still exist which could contribute to a flight to quality here in the US fixed-income market. No one can argue that over the summer, mortgage rates have fallen substantially - remember when we began this year every economist said that rates were going to go up - so much for forecasts. At this point, however, few analysts believe that the government will take further action which would push mortgage rates lower. The upcoming meetings of the Fed's policy-setting committee this year are Sept. 21, Nov. 2-3 and Dec. 14.

After a Summer of almost steady decline, mortgage rates have mostly plateaued as the season comes to a close. During the period, rates moved down by a little better than one-third of percentage point, frequenting new lows regularly. That said, the vast majority of the decline in mortgage rates took place early in the season, and the last six weeks have found a very narrow range in which to wander.

Provided the economy gets no worse, and there is no return of financial panic, mortgage rates don't really have much place to go.

Some inflation is a good thing, since it helps to produce rising incomes and profits and such, and can even promote greater spending today (since items will get more expensive tomorrow). It is thought that the Federal Reserve might prefer to see consumer prices increasing by about 2 percent per year, but given all the "resource slack" in the economy -- idle factory space, idle workers -- all they can hope for at the moment is that we don't slide under a zero percent rate, since that might require extraordinary measures, such as purchasing sizable amounts of Treasury bonds or flooding the markets with even more cash. At the moment, the problem isn't that there is insufficient cash in circulation, it's that this cash is being held onto by consumers and businesses who are afraid that the poor economy might hurt them further. This impacts confidence, confidence impacts demand and spending, spending impacts inflation, and around and around we go.

Reducing labor slack -- aka creating jobs -- should long ago been the focus of the administration. However, that didn't turn out to be the case, and as a result, we are coming into those November elections with a very high unemployment rate. At this point, even a decline in the number of layoffs would lend some cheer, but we remain at elevated levels for first time unemployment claims, so there's little progress to note in this regard. During the week ending September 11, another 450,000 applications were filed at state windows, but at least this number was slightly better than the week which preceded it. The last two weeks represent the best back-to-back figures since at least July, but are nothing to get excited about.

It would seem that the economic setback of the Summer has passed, leaving it its wake a rather higher mountain to climb to get us back to full employment and a robust economy. Forthcoming elections and possibly looming tax increases shortly thereafter only adds to the steepness of the incline we will need to travel.

Next week, the Federal Reserve meets again to discuss monetary policy and consider what steps, if any, need to be taken to try to push the economy in the right direction more strongly. No policy action is expected, since the short-term interest rates the Fed directly controls are near zero percent already. Still, participants will have plenty to discuss. For our part, we'll be keenly eyeing the NAHB index and both new and existing home sales, which are likely to be poor yet again. Since the expiration of the last homebuying tax incentive, conditions have been very weak. Although reportedly not in the cards, we think that another homebuyer tax credit should be on the table, but rather different than the programs previously offered.

(As always, the joke does not necessarily reflect the views of the writer.  ,)

A man was leaving a convenience store with his morning coffee when he noticed a most unusual funeral procession approaching the nearby cemetery. A long black hearse was followed by a second long black hearse about 50 feet behind the first one. Behind the second hearse was a solitary man walking a dog on a leash. Behind him, a short distance back, were about 200 men walking in single file.

The man was overcome by curiosity. He respectfully approached the man walking the dog and said, "I am so sorry for your loss, and this may be a bad time to disturb you, but I've never seen a funeral like this. Whose funeral is it?"

"My wife's."

''What happened to her?"

The man replied, "My dog attacked and killed her."

He inquired further, "But who is in the second hearse?"

The man answered, "My mother-in-law. She was trying to help my wife when the dog turned on her."

A poignant and thoughtful moment of silence passed between the two men.

"Can I borrow the dog?"

The man replied, "Get in line."