Using Consumer Confidence To Guess Where Mortgage Rates Are Going

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The economy is in recovery. Or so we hear. There appears to be a lot of data in support of the argument:

• Existing Home Sales are up 24 percent in twelve months
• Credit markets appear markedly stable as compared to last year
• The stock market is touching 13-month highs

And while this has been happening, there's been nary a peep from inflation.

In most circumstances, we'd label the argument Case Closed, recession over, blue skies ahead.  Only, this isn't most circumstances.  And a major component of the economy is conspicuously absent -- consumer spending.

Consumer spending is a U.S. keystone, accounting for 70% of the economy.

Without consumer spending, we can't pronounce the recession's death.  Wall Street knows it.  As a consequence, Retail Sales data is the Economists' World equivalent of a rock star this season, getting scrutiny and attention well beyond its data-modeled peers.

The audit's also bringing focus to Consumer Confidence data.

Many analysts believe that confidence correlates to spending.  Looking at the trendline chart, they've got good reason -- there relationship between sales and confidence appears to be direct.  But there's some analysis worth doing, too.

• In a "healthy" economy, consumers spend more than their confidence suggests
• In a "sick" economy, consumers spend less than their confidence suggests

In other words, because our current economy is not yet recovered and because joblessness rests north of 10 percent, expect holiday sales to drag this year.  Consumers will spend even less than they themselves tell the pollsters they're planning to spend. Fear will rule the (shopping) day.

For mortgage rate shoppers, it's wonderful news.

As consumer spending drags, economic doubts will linger.  Tough recovery questions will resurface for 2010 and, until they're retired, mortgage rates won't have much reason to jump. Rates will be way up some days and nicely down on others, but, absent a complete shocker, look for mortgage rates should bounce within the same 5.250% range in which they've resided for the past 12 months.

Predicting mortgage rates is an inexact science but sometimes there are clues to help you. Make consumer confidence and retail sales data two of your guiding lights.  Then, follow me on Facebook or on Twitter to see what the market's doing in real-time.

When you're ready to lock or need a rate quote,. I lend in most states and if I can't help you, I'll point you to a resource that can. I answer all my own emails and my rates are always excellent.