Last week, we discussed the European debt situation, and how it could touch the U.S. economy. One week later, uncertainty about European debt is weighing notably on markets. Since we reported that the Dow hit its highest level since 2007 on May 1, it has fallen nearly 1,000 points. The culprit for this volatility is partially uncertainty about Europe, but the drop has been bolstered by lukewarm U.S. economic indicators (sluggish employment and certain manufacturing reports). When I asked Dan Podesto (co-owner and host of our KVEC radio show Mortgage Matters) about all of this, he responded:
“Sure, data hasn’t shown huge amounts of growth, but it is still growth. I try to remind people that the economy is like a large ship, and it requires time and effort to change directions. A large ship doesn’t bank immediately, and neither does a $16 trillion dollar economy. The news is still positive, if slow, growth. Now is not the time to panic.”
In response to slumping stocks, the bond market has shot up, bond yields have dropped, and interest rates fell. Last week, the 10-year U.S. Treasury bond yield closed at 1.706 percent, the lowest on record, which spurred interest rates on to new record lows.
I looked back through our website archives to find what we wrote about the European debt issue in the past, and I found this quote from Jason Van Dyke’s article published on January 19, 2012:
“Interest rates are also getting some help with all of the financial turmoil we have been seeing coming out of Europe the last few months. As unsettling financial news comes out of Europe, investors in the U.S. get a bit nervous about their investments. And as investors get nervous about their riskier stocks, they move some of their money into safer bond investments, bringing bond prices up and dropping yields. When bond prices increase, interest rates decrease.”
I could have simply copied this paragraph and used it for today. Five months later, the market is still dealing with the uncertain European debt situation, but remember that the stock market can be too reactionary, and it also tends to make the biggest headlines. Big drops from the Dow due to concern about Europe is not the kind of information to use when forming opinions about the U.S. economy. What we do know for certain is this: job growth continues to be positive, manufacturing is strong, retail sales are still moving upward, and the U.S. GDP (Gross Domestic Product) is still on pace for 2.0 percent growth. We are even speculating that the housing market could soon turn around (See: Why home prices might be nearing an improvement). We are not in a recession and are still moving through a slow, steady recovery.
Over the past week, the 30-year fixed (3.500 percent, 3.551 percent APR) and the 30-year fixed high balance (3.625 percent, 3.700 percent APR) both logged improvement of between 3/8 and 4/8 of a point, which dropped the APR on already record low levels. The 30-year FHA (3.500 percent, 4.347 percent APR) and 30-year VA (3.500 percent, 3.515 percent APR) also dropped. The 15-year fixed remained at last week levels (2.750 percent, 2.917 percent APR), but keep in mind these were already at record lows. The refinance window is open for thousands in savings. Give us a call for a free, quick and easy conversation about your finances – 805.543.LOAN.