How The Stimulus Package Indirectly Led Mortgage Rates Lower

The American Recovery and Reinvestment Act of 2009 was signed into law Tuesday in Denver, Colorado.  Also on Tuesday, stock markets fell near their November 2008 lows.

The two moves are related.

With each new stimulus; with each potential jumpstart of the economy, Wall Street questions whether the federal push will be enough to make an impact. 

Traders ended undecided on that issue yesterday, but resolute in something else -- that whatever change stimulus bill brings, it's not going to come fast enough to help.

The sell-off in equities was a boon to home buyers.  For the first time since early-December, mortgage markets gave a sustained rally, extending gains from the 8:30 AM market open through the 4:00 PM market close. Conforming mortgage rates were down on the day. 

Longer-term, though, it's not likely that pattern will last.  Not only will the stock market eventually find balance, but, more importantly, there was verbiage in the stimulus bill that increased the nation's debt ceiling by 53.4 percent. Debt, of course, is often financed with the printing more money and that leads to inflation.

Inflation is the enemy of mortgage rates.

So, for now, the stimulus plan is helping mortgage markets, albeit indirectly. If you're shopping for home loan, consider locking quickly.  When markets flip -- and they always do -- it figures to be sudden.

(Image courtesy: Recovery.gov)