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Market Update 8/5/2008 – Interest Rate Increases Are Back

As we are waiting for Fed’s announcement at 2:15pm there is some very relevant news that is important to mention that has stimulated a slight increase in mortgage interest rates today. I am expecting them to worsen as the day continues unless the Fed’s statement hints about not increasing rates in the near future. If you have not locked in a rate, I suggest that you do so if you are refinancing or purchasing a home. It can definitely go the other way as well because of all the mixed news, so it’s better to stay safe.

Here is what’s going on:

Oil prices have dropped again and the Institute of Supply Management reported a higher than expected increase in the service sector of the economy. This has stimulated a stock market rally. For now, the bond market has not been intensely hurt, which is what usually happens. However, lenders have already increased interest rates once today. They have probably done this in preparation to the selling of bonds that could arise. Once the Fed’s news is out we will be able to commit to a direction of where we think the market is headed.

Simply Put: With oil prices dropping again and the economy’s service sector improving, investors have had some regained faith in the stock market. Think about it: if oil prices drop, consumer’s have more money to spend and if services are up as well, investors feel better about placing their money into the stock market. This hurts the bond market and since mortgage interest rates are practically tied to the 10-year bond, they increase as well.