As many of you know our mortgage rates are driven by mortgage bonds...primarily the Fannie Mae bonds. As in any investment the price/value is determined on many factors. Bonds have been able to remain high (rates low) due to the participation from foreign investors...mainly China and Japan. Recently China has expressed some concern about the safety of purchasing US Treasuries. China has voiced concern to the new administration about being too aggressive in its spending which will ultimately lead to inflation...and inflation is not a good thing for mortgage bonds as the inflation would erode the value of the asset.
As you can see our path to recovery is about as clear as mud. Higher spending and stimulus will lead to inflation...and inflation causes those countries and investors who fund the stimulus to shy away from our debt...thus cutting off the source of funds for the stimulus.
On a good note it does look like the financial markets are starting to stabalize and Citigroup has rose from the dead to declare they are actually profitable for the first couple months of 2009...who would have thought? Citigroup has also indicated that they dont intend to use TARP funds in the future which would lead one to believe that have sufficient capital to fund their operations going forward.
Lets hope the rally this week on the stock market and some of these other developments are an indication that things may be at their worst and there are brighter days on the horizon.
