Vail Daily column: Will global economics slow down the U.S. recovery?
This week has been a bit like the old days (note I’m leaving “the good” off) of the past five years in terms of interesting news to write about. During the height of the economic meltdown, governments were tottering on default, markets swinging wildly and currencies fluctuating. Working in the mortgage industry was a bit like being in Iraq; we seemed to have to duck incoming rockets and invisible bullets were flying everywhere as companies imploded and long-time industry icons seemed to vanish in a cloud of dust.
The only thing good about those days was it was always easy to write this column because there was no end to shocking economic news. The past few weeks have been chock full of shocking developments, and it’s hard to know what might happen next with mortgage rates.
As I’ve often said, everything that happens in the global economy eventually impacts mortgage rates, for better or worse. Generally the worse the news, the better for homeowners wanting to borrow money (assuming said homeowner still has a job to pay back the money).
The root of much of the most recent problems seem to stem from the drastic drop in oil prices. One definite legacy of the Obama administration will be turning the U.S. into a global powerhouse of oil and gas production. At the same time, demand for energy is flat to declining globally. This has resulted in the largest glut of oil sitting around in probably over a decade, at least, and as every driver will attest, the lowest gas prices in years.
This has resulted in a major crisis in Russia, which depends heavily on oil sales for most of its foreign exchange. In an attempt to attract enough buyers of its government bonds, the Russian Central Bank upped interest rates from 10 to 17 percent overnight last week, sending a clear signal things are going from really bad to even worse.
In addition, Spain and Greece are reportedly facing near default on their pile of government junk bond debt, which further roiled markets. These combined issues caused the stock markets to make some huge drops. As to be expected, investors flocked to the relative security of the U.S. bond markets, and that flood of cash lowered mortgage rates to their lowest point in about two years.
In addition, there is the domestic impact of low oil prices which will on the one hand be a boost to consumer spending, but on the other will be a blow to the oil industry which has been a powerhouse in creating jobs and fueling spending in those areas rich in oil (Colorado among them).
But not to be so easily upset was the U.S. Federal Reserve board of governors, who rather breezily seemed quite unperturbed by global goings-on and for the most part ignored the above issues as if they were not barreling down on the U.S. economy.
In reading the minutes of the most recent Fed meeting, one would think that global economics have been removed from the list of items the Fed contemplates when it predicts the future of the U.S. economy. The indication was clear the Fed expects continued economic growth and that now sooner, rather than later, interest rates will rise. It’s as if the Fed board of governors decided to move to the forest and hang out with Goldilocks and predict the price of porridge.
I do think there is a lot of inherent strength in the U.S. economy and that we will see success in economic growth in many segments. But to not factor in global economics into tempering that growth significantly is puzzling to say the least. The global economy is not going to share our expected prosperity anytime soon, and it’s all interconnected.
My guess is we are still in for some very wild rides in the stock and bond markets, and interest rates will fluctuate considerably depending on what version of the economy investors choose to believe on any given day.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at http://www.mtnmortgageguy.com.