Bad News in Greece is Good News for Mortgage Rates

There continues to be a lot of economic focus on Greece. Greek political leaders remain divided and have been unable to form a coalition government following recent elections. There continues to be little support for the bailout package, which requires severe austerity measures, and it’s not clear what position a new government will take. Statements from European Union (EU) officials suggest that Greece must comply with its austerity agreement to receive further aid. Without aid, Greece likely will be forced to leave the EU. As a result, Fitch has again downgraded the debt of Greece.

The turmoil in Greece has actually been positive for US mortgage rates. The first reason why is that economic growth in the region has slowed, which reduces future inflationary pressures. The second reason is that investors have responded to the uncertainty by shifting investments to relatively safer assets, including US mortgage-backed securities (MBS). The economy of Greece is very small, but the increasing possibility that Greece will exit the EU calls into question the stability and the benefits of the monetary union, causing a wide range of problems outside of Greece. Bond yields in other troubled European countries have risen, creating a further drag on economic growth. People are beginning to withdraw their money from banks in these countries, increasing the risk of bank failures. Europe’s issues will not be resolved quickly and will continue to influence US markets for quite a while.

Posted In : Feed, Interest Rates, Mortgage News, News & Reports, Real Estate

This entry was posted on Monday, May 21st, 2012 at 1:24 pm. and is filed under Feed, Interest Rates, Mortgage News, News & Reports, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.