Today mortgage rates should remain at or slightly above closing levels from yesterday. Mortgage rates are lowest when the economy is the weakest. Our economy is not at that point…yet, but it’s at the next best point for mortgage rates…the point of economic uncertainty. For the better part of 2011 it has appeared that the US economy was steadily strengthening and improving. Then in late April signs of trouble began to appear: rising gas prices, rising commodity prices and prices of imported goods, stagnant job creation, tanking home sales figures and stagnant or receding job growth. Hmm? Is this the end of the recovery? Are we headed back into recession? Will mortgage interest rates test their all time lows? Probably not. Though when combined with trouble in Europe and slowing growth in China, the answers are not certain by any stretch. Today mortgage-backed securities markets will have two sources of data to consider. First at 10 AM ET the Commerce Board will release new home sales figures for the previous month. Expectations are for another very disappointing result. I am not so sure. Anecdotal reports have suggested that while existing home sales are falling nationwide, some communities are seeing relatively strong sales of new single-family homes. Regardless of a potential surprise to the upside with new home sales, the second data point markets will consider tomorrow will likely have more sway over the ultimate direction of mortgage rates. At 1 PM ET the US Treasury will auction $35 Billion short term bonds. With the degree of uncertainty present in world markets I expect the sale to go very well. MBS should also be popular tomorrow in light of the perceived risks caused by the growing European debt crisis. What crisis you ask? Many of the smaller nations in Europe have serious financial trouble do to the double-whammy of decades of overspending on social programs and an aging population that is becoming less productive with each passing day. The first European countries to be impacted were Ireland and Greece. While Ireland has made progress in getting its house in order, Greece has failed, thus far, to gain control of its fiscal crisis and is close to defaulting on its debt. Trouble is spreading from Greece to Portugal, Italy and Spain. One bailout or more is likely to be needed from the more successful European nations working in concert with international financial organizations the World Bank and the International Monetary Fund. On Monday afternoon a prominent investment newsletter editor forecasted that Germany may leave the European Union in the next year or so to avoid getting stuck paying for the failures of these smaller nations. If this were to occur it would greatly damage the credibility of the Euro currency, send the value of the US dollar higher and lower interest rates. This forecast assumes of course that a long term deficit-cutting deal is reached in the US. That could be a big assumption.

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