Mortgage Market Giving Economists Fits, Should Mortgage Borrowers Care?

It seems we are in the perfect economic storm for mortgages. Many homeowners and potential home buyers are stuck in a confusing mix of market signals. A blend of good and bad that leave us with a balanced scorecard. This is leaving most experts offering little practical advise and instead focusing on predicting the bottom.

Since, there is little market news on this Labor Day lets take the down time to step back and see what all these current mortgage trends might mean to you.

Home Sales Up, Inventories Up

Over the last weeks we saw that existing home sales were up. This typically means that the housing market is on the move, which is a good sign. However, this indicator supplied by the National Association of Realtors is one surveyed on applications for sales, not closings.

This application versus closing detail begs the question--is there a risk to significant fall-out between application and closing. For this answer we will look towards another indicator--housing inventories.

Housing inventories are also reported surging. How is that possible if more houses are being sold? In a normal market--people putting homes on the market to move or upgrade--you typically would see these indicators move in the same direction. This is your clue that something different is occurring.

Something is different. Banks are dumping foreclosure sales onto the market.

In summary, this means that housing sales are probably inflated as many applications fall out as insufficient offers to banks and homeowners. Meanwhile, time and supply continues to drive down housing prices.

As a home buyer this means the market is flush with potential discount opportunities.

So, if you need a home--now may be the time. If you are a homeowner and can stay put, now may not be the time to sell.

Mortgage Rates are Low, but Qualifying is Hard

In a similar pattern, mortgage rates and credit qualifications are moving in counterproductive directions.

Mortgage rates are staying low, but at the same time banks and mortgage lenders are tightening up credit qualifications. This tightening is to compensate for risks and borrower characteristics that have melted down many lenders and mortgage portfolios.

This is making it difficult even for the best of borrowers to take advantage of low rates and affordable housing prices.

Again the decision to buy or refinance a home goes to need and preparedness. If you need a home and are diligent about preparing your finances and documentation you have a great opportunity.

Inflation is Rising, but the Economy is Softening

And for the trifecta, we have inflation versus the economy.

Inflation is on the rise, which makes everyday consumer items and necessities more expensive. However, much of this rise is attributed to energy and food--that means something to economists, but little to you. Things are more expensive.

Meanwhile, you probably aren't making more money. The keys to a health of economy, like unemployment rates and disposable income are slipping.

The result is your dollar is not going stretch as far and your income situation is probably getting more challenging at the same time.

Unfortunately, this leaves the government with competing challenges to help you. If they attack inflation, making things cheaper they typically raise rates to reduce demand. However, raising rates turns a blind eye to the typical response to juicing the economy, by lowering rates and injecting more affordable money into the market.

Recent indications from the Federal Reserve, the controllers of these economic buttons (the Fed lending rates), is that they have made their decision on the most pressing problem--inflation.

So, for the mortgage borrower this means Fed rates will increase and over time this will begin to raise mortgage rates.

The advice coming from these indicators is that it might be smart to strike while the iron is hot. Mortgage rates will be increasing--if you want to buy or need to refinance time is of the essence.

Bottom line Mortgage Advice

All considered this is confusing and challenging time for those that are the caretakers of the economy and politicians, but to the average borrower on the street the decisions are simpler.

• If you need a home--buy
• If you don't need to sell--hold
• If you are a buyer--there are great deals and good rates
• If you are a homeowner--time may be running out to refinance

The best general advice to mortgage borrowers is to consider your options carefully and ignore the economists marketing timing banter--you are not trying to predict the housing market bottom you want to buy or refinance a home at competitive prices and rates.