What we’ve got here is a failure to communicate.

“What we’ve got here is a failure to communicate.” Hopefully, that famous line from the 1967 movie Cool Hand Luke won’t apply to our leaders on Capitol Hill, as they work toward a resolution on the debt ceiling debate and budget fight. Read on to learn what this could mean for home loan rates.

Congress continues to debate whether to raise the debt ceiling, which is now at $16.7 trillion. Although the debt limit deadline is technically October 1, the Treasury Department has said that it has enough funding to operate as usual until October 17. Failure to raise the debt limit by October 17 would most likely lead to an unprecedented default on the United States’ bills. In addition, if no deal is reached ahead of the October 1 deadline on the budget fight, a partial government shutdown could occur.

The uncertainty over these issues helped Mortgage Bonds improve last week, as investors moved their money to safer investments like Bonds as they often do in times of uncertainty. Since home loan rates are tied to Mortgage Bonds, this
also helped home loan rates improve last week.

In housing news, Case Shiller reported that its 20-City Home Price Index for July rose by 12.4 percent compared to July 2012. This is the fastest annual pace since 2006. However, from June to July there was only a 1.8 percent increase, which is the smallest monthly gain since March, as 15 of the 20 cities saw slower growth. This slowdown can be attributed to the rise in home loan rates over the past few months. New Home Sales did increase by nearly 8 percent in August from July.

Also of note, the government reported that the final reading on Q2 Gross Domestic Product was in line at 2.5 percent and unchanged from the second reading. Inflation as measured by Personal Consumption Expenditures remained tame in August while Personal Incomes and Spending were in line with estimates. These readings give the Fed cover to continue its Bond purchase program known as Quantitative Easing, which has helped home loan rates remain attractive.

The bottom line is that home loan rates remain attractive compared to historical levels and now remains a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.