Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – February 26th, 2008

Pogo-Stick Blues

Mortgage-Backed Securities are bouncing up and down like a pogo stick on a cement slab.  Let’s see what’s happening!

As promised, we’re reporting on the Consumer Price Index first thing.  Whadoyathink?  Hotter than expected, of course!  Actually, the largest gain since June of 2006!  And the year-over-year Core CPI is now at 2.5%.  Remember, the Fed wants to see inflation levels between 1.0% and 2.0%.  So, 2.5% does not bear well for interest rates. 

I think you’ll be hearing a lot about the four-week average of Initial Jobless Claims.  Remember that I have indicated in the last two articles that the last recessions that we were in held an average of 362,000 claims.  This past week we hit a four-week average of 360,500…that’s 10,750 over last week’s average, and it continues to steadily climb. 

I’m tellin’ ya that a prudent loan officer has their finger on the lock trigger.  I’ll even tell ya a little secret.  When you’re negotiating on a purchase price, and you think you’re going to get a counter offer…talk with your loan officer about just locking in the interest rate, even before you have an accepted offer.  But don’t share that strategy with too many people! 

Remember “Pong?”

Two weeks ago we were locking in clients at 5.625% with an APR of 5.781% and now we’re at 6.25% with an APR of 6.426%.  This type of volatility is expected to continue.  Here’s what’s happening in the trenches:  You ever play “pong?”  Remember the little square would bounce off of your “paddle” and move to your opponent’s and bounce back?  That’s what mortgage-backed securities are doing.  They’re bouncing OFF of the 200-day moving average and moving up (remember that yields move in opposite directions as bond values.  So, when bonds move up, yields and interest rates move down).  Then, when they gain some ground and move toward the 100-day moving average, just like your component’s “paddle” the 100-day is acting as a layer of resistance and pushing those bond values down right off of it.  The variance between the 100-day and 200-day moving averages is about 115 basis points.  So…rates are moving in cost, back and forth and costing about 1.0% point to 1.125% points more when they’re by the 200-day moving average then when they’re by the 100-day moving average.  That’s my attempt to explain why we’re experiencing this volatility. 

So, on Tuesday morning when the Producer Price Index came out at a whopping 7.4% for their year-over-year level…it’s worst since 1981…bonds reacted negatively, moved down, so rates went up, but we Pogo-stick bounced right off of the 200-day moving average and rates actually got better.  Let’s hope this continues, regarding the strong layer of support that this trend line is offering. 

What Will Core Inflation Be Next Week?

Friday will give us the Federal Open Market Committee’s Core Personal Consumption Expenditure Index.  This has continually been reported from 2.1%, 2.2%, 2.3% and if we’re higher than that…inflationary!  Remember the Fed wants these reports between 1.0% and 2.0%!  So, the 200-day moving average is one of my best friends right now.  Let’s hope he can keep it that way for all of us.   Did I mention that it’s a good time to buy?  Well, it is!  Take advantage of what this market has to offer and call you local Realtor to get into escrow on these great prices and still wonderful interest rates.  Until next week…

This entry was posted on Tuesday, February 26th, 2008 at 6:21 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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