Danny Salas

Archive for August 29th, 2007

Chico, CA Interest Rates Market Report – Economic Influences – August 28th, 2007

Rates Stabilizing?

Conforming Loan Limit Increase?

No word yet on the increase in conforming loan amounts.  In last weeks article we mentioned that Fed Chairman Ben Bernanke was meeting with officials to see about the opportunity to help our current liquidity crisis by increasing the number of loans that FannieMae and FreddieMac would purchase.  By increasing the loan amount, from the existing $417,000 limit on single family residences, it would free up banks to fund more loans and help with this crisis. 

FHA Loan Limit Increase?

An emergency increase in Housing and Urban Development’s FHA loans, is also in the works.  Currently, in our area, the maximum loan amount, for a single family residence, is $304,000.  Rumor has it that they would like to increase this amount to the existing Conforming Loan Limits of $417,000. 

Interest rates have remained relatively steady over the past week.  Even with a lot of the economic data that was reported, we are in somewhat of a tight crunch between the 100-day and 200-day moving averages.  The 100-day moving average has really been a significant level of support, but the 200-day moving average has really been strong level of resistance.  Remember that there are “trends” or “averages” that bonds (mortgage backed securities) follow.  For example bonds will make a 50 day, 100 day, or 200 day moving average that they like to stay close to.  By watching and measuring these “averages” or “trends” you can generally tell where bonds (and therefore interest rates) will move. 

Last week four major lending institutions borrowed money from the Federal Reserve’s Discount Rate discussed in last week’s article.  Citigroup, JP Morgan Chase, Bank of America, and Wachovia Bank all borrowed $500 Million each.  Next week we’ll learn just how much money was borrowed from this “Discount Window.” 

Jobless Claims Are Concerning

The Bank of Japan decided to keep their overnight rate unchanged.  It’s largely believed that if they did raise their overnight rate, even to deal with concerns of inflation that they’re having, it would have sent more concern into to global markets.  Initial Jobless claims were up to 322,000.  That’s near expectations, but this number keeps moving from the 300,000 normal range…to 325,000 as being where “expectations” are…more softening in the labor department?  Durable Goods Orders were way up!  But this report has been very volatile, recently, and therefore the markets did not react. 

Interestingly, the Bank of China revealed they held a significantly greater number of subprime mortgage investments than expected.  This story will continue to develop and we’ll see how it will affect our market. 

Recession Around the Corner?

There are a number of economists that are indicating that we’re heading toward a recession.  Hopefully, the moves that the Federal Reserve is acting on; lowering the discount rate, watching core inflation and wage based inflation, a probable move to lower the overnight rate on September 18^th,  should prevent such an outcome. Also, consumer confidence is really low.  Actually at it’s worst level of the year. 

Next week we’ll be reporting on the Gross Domestic Product and the Fed’s Favorite Gauge on inflation, the Core Personal Consumption Expenditure Index (PCE).  So, for the week ahead, generally it would look very favorable for interest rates, however, as mentioned above, the 200-day moving average has been as stubborn as a mule to get past.  We actually bounced right off of it on Monday.  So, if we can’t get by that tough level of resistance, we may see the opposite and slightly higher rates for next week.  Until then…