Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – November 27th, 2007

50 Basis Point on the Waist

Wow!  Even with the short week there is a lot to report on.  First, I probably gained about 50 basis points on my waist-line this weekend.  Not good for “interest”…period! 

Anyway, housing starts were higher than expected, but interestingly, building permits (which shows future housing activity) were at there lowest levels in fourteen years.  This may indicate that new construction might level off. 

Freddie Needing More Money?

FreddieMac (the nations 2^nd largest purchaser of real estate loans) reported a loss of $2.0 Billion in the 3^rd quarter.  They are also indicating that they’re a little short on a comfortable margin above the required reserve funds and hired Goldman Sachs to help them raise capital.  This will be an interesting story to watch and see how it may affect the markets in the future. 

Last week we saw the Ten-Year Treasury and Mortgage-backed securities moving in opposite directions AGAIN.  It’s the second time in less than a month that this has occurred.  Remember, interest rates follow yields on mortgage backed securities…period.  So make sure you’re working with a mortgage professional that follows this…and understands it…or it could be quite costly, to YOU. 

Overnight Rate Cut?

The minutes were released from the Federal Open Market Committee’s last meeting.  It was interesting to note that the Fed thought that lower inflation may be in the forecast.  So, while in the recent past, it looked as though the Fed was definitely NOT going to lower the overnight rate in December, with this lower inflationary tone, coupled with slower economic growth and job growth…who knows…maybe there WILL be a cut. 

Did You Lock On Monday?

Earlier this week mortgage backed securities were at their best levels in over two years.  Monday was the day to lock!  What happened was very interesting.  Interest rates benefited because stocks took quite a hit.  Remember that when stocks aren’t doing well, money flows out of them and into bonds…benefiting interest rates.  Well, the Dow Jones Industrial Average, the NASDAQ and the S & P 500 were all trading below their 200-day moving averages.  Just like bonds, stocks have trends and averages that they like to hover around.  Once they break through a trend (above or below) markets can move quickly. 

With the lowering of stocks, money flowed into bonds.  Bond prices went up, causing rates to move down.  But once bond values touched on the two year high…it was time to lock…cause it’s VERY hard to break though a tough level of resistance that hasn’t been broken in over two years.  So, locking was prudent. 

Abu Dhabi Invests in Citi

Sure enough, first thing on Tuesday morning, Abu Dhabi Investment Authority and Citigroup announced that Abu Dhabi was putting $7.5 Billion of capital into Citigroup to help them offset their recent losses particularly from the Sub-prime mortgage fiasco.  This sent a message to investors that stocks might be hitting rock bottom.  And, if investment companies are willing to come in a buy, buy, buy, obviously stocks will benefit.  But, at whose expense?  Bonds of course!  So, interest rates moved in the opposite direction as on Monday. 

To make things a little worse, Goldman Sachs reported that the Fed WILL decrease the overnight rate by 150 basis points to help with the credit crisis and have the overnight rate at 3.0% by the middle of 2008.  This is thought of as inflationary, because it lowers the value of the American Dollar, making foreign imports more expensive. Last, the New York Federal Reserve Bank announced that they are putting $8 Billion worth of liquidity into the market.  This should calm investor’s fears of a continued liquidity crisis.  Rates continue to be below 6% for conforming loans.  If you’re a fence sitter…start taking out the splinters and make a move…it is time.  Until next week…

This entry was posted on Tuesday, November 27th, 2007 at 6:23 pm and is filed under Home Buying, Interest Rates, Weekly Market Report. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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