Just when the economic pundits think they have it all figured out, something else comes along to completely mess up the message. What’s the message? That the Fed’s tapering of the QEII program would gradually increase rates, ultimately leading to higher financing costs for rental properties. That mantra worked, at least toward the end of the year but over the past few weeks the cost of funds has actually been falling, not rising.

The fourth quarter of 2013 teed up what looked like an awakening economy. Payroll numbers were up, the unemployment rate went down and the fourth quarter GDP number looks like it’s going to come in rather strong. But December’s unemployment report startled a few and put the markets on hold. Then last week, the DJIA ended its worst week in more than two years on news from China and other global concerns.

As reported in the Wall Street Journal, (1) HSBC bank’s purchasing manager’s index for China fell to 49.6 from a 50.5 December reading. That’s an indication that China’s economy is contracting, not growing. And if China’s economy catches a cold, it’s time to stock up on a cold remedy. There’s certainly a possibility the data is a bit off kilter as the final index wont’ be completed later on this week and it so, the stock markets should blow off the losses and recover. Maybe. There are also concerns in Argentina and the Ukraine has rattled most equity markets. And what happens when equity markets get rattled?

For now, funds are streaming back into U.S. Treasuries and mortgage-backed securities. The very same vehicles the Fed is pulling away from. This week, the FOMC will meet yet again and most are anticipating another $10 billion taper and the week after the January unemployment numbers will be released. If January looks like December and China’s numbers are confirmed, mortgage rates for real estate investors should stay near current levels.

  1. http://tinyurl.com/l7nqag5