NEW YORK (MainStreet) – Economists are crediting the recent boost in interest rates to an improving economy, but is it really as simple as that? And can consumers expect even higher rates going forward?
We may already have an answer this week, and it could be a decided “no” on both of the above questions.
What we do know is that interest rates have been on the rise during the past week.
The benchmark 10-year U.S. Treasury Bond yield rose from 2.26% to 2.38% from Thursday to today, mostly on upbeat news about jobs and stronger consumer sentiment on the economy.
Don’t hold your breath on higher rates lasting, even though that’s a trend cash-starved bank savers wouldn’t mind at all.
The economic data already coming out this week is tossing cold water on any talk of substantial economic growth. The National Association of Realtors said today that February’s existing home sales fell 0.9% on a month-to-month basis, although the year-to-year figures were still 8.8% higher than in February 2011.
In addition, the Mortgage Bankers Association reported today that mortgage applications slid 7.4% from last week to this week.
Neither piece of housing data is bullish, but at least the NAR is upbeat.
“The market is trending up unevenly, with record high consumer buying power and sustained job gains giving buyers the confidence they need to get into the market,” said Lawrence Yun, chief economist at the NAR, in a statement. “Although relatively unusual, there will be rising demand for both rental space and homeownership this year. The great suppression in household formation during the past four years was unsustainable, and a pent-up demand could burst forth from the improving economy.”
But who really knows? Today’s number may just be a blip, or it may be a more ominous sign that the housing market isn’t as strong as economists had hoped.
That’s the line Wall Street is taking today as the benchmark Dow Jones Industrial Average was down 40 points through 11 a.m. trading this morning.
Federal Reserve Chairman Ben Bernanke also weighed in on the economy this morning, in comments to the Committee on Government Oversight and Reform of the U.S. House of Representatives. He urged caution about the economy, noting that banks were still vulnerable to debt problems in Europe, and that’s not good news for the economy.
“Were the situation in Europe to take a severe turn for the worse, the U.S. financial sector likely would have to contend not only with problems stemming from its direct European exposures, but also with an array of broader market movements, including declines in global equity prices, increased credit costs, and reduced availability of funding,” Bernanke told committee members.
Bank savers and mortgage consumers might do well to sit tight for a week or two and see whether the run-up in rates has any legs to it. If the news coming out of the Federal Reserve and from the housing market provides any guidance, rates may find another surge upward a difficult proposition.