The stock market has dropped sharply as investors are again focussing on corporate earnings and economic reports that clearly indicate the economy is struggling with numerous issues. The Bank of England dropped their funding rates by 1.5% in an effort to try and prop up the economy and improve liquidity in Great Britain. World markets in Europe and Asia have dropped sharply as more large corporations are reporting dismal outlook for earnings growth in the near future. Stocks have been beaten down in many sectors as the market is off over 30% year to date, despite rallying off of the lows from October.

Consumers who are shopping for a mortgage could benefit from the recent drop in the stock market and improving credit markets to secure a new mortgage in the lower six percent range. The U.S. housing market is beginning to show signs of a bottom as lenders have agressively moved to slow down home foreclosures.

The U.S. stock market was closed down in pre market trading as fears of a signicant sell off pushed the market down over 550 pts in pre market trading. There was speculation that the market could drop over 1000 pts in one day as panic seems to be spreading into all areas of the economy. The recent sell off can be further attributed to hedge funds that have to liquidate holdings as they are over leveraged and are essentially forced into selling the market.

There was some good news in the market that was overshadowed on Friday. U.S. home sales climbed higher for the first time in the past thirteen months. Mortgage rates have moved lower over the past two weeks and are begining to move closer to the six percent range. There is also a growing sentiment that the government will roll out a more strategic plan aimed at slowing down the foreclosure crisis. If the housing market finds a bottom, the economy will likely be able to turn around much quicker and the recession could be over in the next 12 months.

This year has been a roller coaster ride for both the stock market and mortgage rates. The rapid decline in oil prices this week could help to bring mortgage rates lower in the near future if the trend continues as this will help to ease up some of the inflationary pressures in the market.  Corporate earnings have already been damaged by high energy prices, but certain industries are likely to continue to see some improvements, such as banking, which has build in a good portion of their losses from the mortgage credit crunch to date.

The market has been under severe pressure from the rapid increase with oil prices. There is a growing concern that the level of inflation in the market will continue to grow, despite the slow down with the overall economy as energy prices continue to climb. The economy has been quite resiliant in the 2nd quarter. Ben Bernanke recently issued statements stating that he believed inflation would slow down as the economy slowed down, but many investors are now concerned that the Fed would look to increase the fed funds rate as early as the fall of 2008. The housing market has yet to break out of its down turn and higher mortgage rates will place a further strain on this industry.

Consumers who may be in the market to buy a home or are considering a refinance should act soon to lock into fixed rate mortgages as there is a good chance interest rates will continue to move up through the course of the summer.

The significance of Friday’s report is mostly about the psyche of the American home buyer, if the report shows a glimmer of home this may help to provide some long awaited positive pr for the real estate market. The number of potential home buyers sitting on the sidelines anticipating further price drops may decide that the market does not have much further to fall and begin the process of looking for a home. Mortgage rates remain very attractive and recent changes with both Fannie Mae and FHA are allowing home buyers to get into homes with as little as 3% down payment.

The market could use a lift, if the home sales figures are better that anticipated the stock market could rally and the only downside is this may pressure a rise with mortgage rates which remain firmly near six percent.