Increase in Interest Rates? Not a Smart Move...
Posted June 3, 2009 8:52 a.m. EDT
Updated June 3, 2009 9:23 a.m. EDT
We’re seeing some upward pressure on interest rates right now in a market that simply cannot afford to endure such a move. Here’s why…
The unemployment rate has jumped to its highest levels in 26 years to 8.9% - obviously not a strong indication of economic conditions improving at this point in time.
Housing inventories have jumped to a 10.2 months’ supply – still too high an overcapacity number to have healthy statistics in housing. Consumer Confidence – while the sentiment number has increased recently – my concern is that there is a real disconnect between the Consumer Confidence number that was released and the reality of what is happening in the checkbooks and mindsets of consumers across the land. Foreclosures are still climbing within the US – adding to inventory levels, and still causing a serious financial hardship for many in the country today.
To me it’s counter-intuitive that you would have a rising rate environment during a recession – especially since we’re still in such a huge economic hole.
There are generally two reasons that we see interest rates begin to rise…One is the hope that the economy is returning to stronger ground… or two, it is the fear that inflationary pressures are beginning to return. At this point, it seems that neither factor is present in today’s economy.
A reminder that people need jobs in order to pay their bills. The ADP payroll report released this morning showed that we lost another 500,000 plus jobs in May - while in line with analysts expectations, still a very high number and still a stark indication that we continue to suffer greatly in the jobs arena.
So Treasury, please keep the MBS spending going, and let’s do what is necessary to keep rates low thereby increasing demand for housing once the employment picture improves…We need interest rates to stay at very attractive levels at least for the remainder of 2009 in order to facilitate home purchases and true consumer confidence.
Jeremy M. Salemson
Corporate Investors Mortgage Group, Inc.