Dubai rattles equity markets, sends mortgage rates even lower
November 29, 2009 by admin
Global markets were sent reeling on Friday as news out of the Middle East sent panic across the equity markets. One of the world’s wealthiest countries has been instrumental in working to rebuild the image of the Middle East as a destination for travel and financial importance. Friday, news that one of the largest development projects Dubai World was in dire financial position sent panic across the markets.
Markets work on the base of confidence and fear. Investors who lose confidence in the market can quickly cause a large selloff as witnessed on Friday with equity markets. The fear was based on the financial impact to both local and international banks which have faced enormous selling pressure over the last twenty four months as they have struggled to deal with the global real estate market. The potential for hundreds of billions of dollars worth of additional exposure was enough to shock the markets. The interconnection of the lending industry in a global economy has proven to be an area that leads to large swings in stock trading when bad news hits the market and clearly this was the case on Friday. The Dubai World development project is one of the world’s largest commercial real estate projects and one that has been financed through a collaboration of banks. The agency that is managing this project has notified its lenders that they would be suspending interest payments for the next six months as they struggle to restructure debts and improve their capital positions. This news definitely shocked the market and led to a large drop in the DOW on a light volume trading day, cut short by a Holiday week.
The drop in the equity market led to a surge of investors in the bond markets. Yields on Treasury Bonds dipped past their six month lows and are now firmly below 3.3%. The renewed interest in bonds has helped fixed mortgage rates again drop another notch. National lenders are offering thirty year fixed rate home loans in the high four percent range for the first time in the past six months, providing yet another window for consumers to refinance their mortgages or lock in a great rate when purchasing a new home. The mortgage industry has seen a steady decline in long term rates for the last thirty days and all signs indicate the low rates should hold through the balance of the years at very attractive levels, helping to fuel home purchases into 2010.