Danny Salas

Archive for August, 2008

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

The Great Prognosticator

OK, OK, I love when this happens.  Here’s what I said last week, “My thought is to quite delicately float into the week due to the price of oil, however, again, a truly itchy finger on the lock button due to the 200-day moving average for oil, and the 50 and 40-day moving averages for interest rates.  We will have probably moved into a lock position before the next article is released.”  What happened?

After hitting close to the 200-day moving average, oil prices ricocheted off and moved toward $116 a barrel, as opposed to $111.  Higher Oil costs turn into higher inflation, which in turn, turns to higher interest rates; which turns my hide!  See…a lot of things are going on right now…who do you trust to watch this stuff and know when to lock in your interest rate?  You better be working with a knowledgeable professional!

2001 Recession Signs

As rates moved a little higher, investors thought they’d enjoy the ride and cash-in on the earlier rise in bonds (lower rates).  This is what is known as a reversal from an “overbought” bond position.  The next day, oil moved closer to $120 a barrel and the four-week average of new Initial Jobless Claims rose to 445,750.  These are numbers not seen since the recession of 2001.

Rates kept deteriorating until they rested on the support of the 50-day moving average.  So, the advice to float, late last week, with a finger on the lock button, truly worked out well for many borrowers.  Wednesday and Thursday saw interest rates lowering nicely, but Thursday afternoon, when oil bounced from the 200-day moving average, everything reversed!  Coupled with news that Korea Development Bank’s announcement that they may acquire Lehman Brothers money moved into stocks.

Rumors Spur Movement To Bonds

Then, the rumors hit regarding the uncertainty of where FannieMae and FreddieMac would be in a few months.  Indicators pointed to another government take-over of the entities and more uncertainty about Lehman Brothers caused investors to move their money again…this time from stocks, to bonds…helping interest rates.

Consumer Confidence moved up this past month, certainly due to a better feeling about oil prices.  “A better feeling about oil prices!”  Wasn’t it not too long ago that I wrote an article about oil reaching $100 a barrel and the markets were shocked?  Unbelievable.  What may continue to help the dollar is the fact that Europe’s German economy may also be slipping into a recession.  This strengthening of the dollar may help the Fed to refrain from a rate hike at their next meeting.  It will be interesting to see.

Next week we’ll be talking about the release of the Federal Open Market Committee’s minutes from their last meeting.  We’ll check out the Gross Domestic Product’s numbers and the Fed’s favorite gauge on inflation; the Personal Consumption Expenditure Index.  Also, we’ll tough base on record Treasury auctions.  So, we’re back to where we left off last week; floating, with a trigger on the lock button.  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – August 19th, 2008

Oil Keeps Comin’ Down

Retail Sales dropped 0.1% in July.  This included automobile sales that were, not surprisingly, low.  With the price of oil, in July, no wonder auto sales were sluggish.  Import Prices skyrocketed, as well.  They have climbed 21.6% year-over-year to maintain a 12-month gain that we’ve never seen since recording the Import Price Index.  The, obviously, is a concern to the Federal Reserve as they watch inflation closely.  However, as oil continues to decline in value, numbers should tame, somewhat.

Hello…Is This Thing On?

A little reminder:  interest rates follow the yields from mortgaged-backed securities.  These yields move upwardly and downwardly just as the stock market does.  And when they move from value to value, and from day to day, they create trend lines.  For example, let’s say that yields on Monday read 1.0% and they increased steadily for the entire week.  At the end of the week, the yield read 1.5%.  If you drew a line from 1.0% to 1.5% the trend would be slightly upward.  Conversely, if the next week you ended at 1.3%, the curve would move down slightly.  Rates work in this manner and they like to stay close to the trend lines.  Any move, drastically in one direction or another, is uncomfortable to the trend line.  It happens, occasionally, with economic information that the market is not expecting, but all in the same, interest rates like to stay close to these trend lines.  So, this past week we have remained above a tough layer of support and the 25-day moving average (or trend line).  However, it has been awfully difficult to pass through a very tough level of resistance at the 50-day moving average (or trend line).  So, interest rates have been bouncing back and forth, trying to stay in between these two trend lines with not much economic information coming out to break rates through either of these lines.

Higher Inflation…Who Cares With Lower Oil Costs…

The Consumer Price Index (CPI) for July came in at 0.8%.  Twice as high as they were expecting; and the biggest year-over-year increase since January.  What kept rates calm was the fact that oil prices keep coming down from July’s highs.  So it looks like the market is willing to forgive these hot inflation numbers, with the understanding that next month, prices will be lower, having an effect on these numbers.  Crazy, huh?  What also helped rates was that Initial Jobless Claims, for the week, stay at 450,000.

What’s In Store For Oil?

Just as mortgage-backed securites like trend lines, so do all markets.  Including Oil!  We’re moving up to the 200-day moving average on the price of oil.  $110.18 is that price and it will be very difficult to move below that stubborn line of resistance.  Also, reported this week, was the Producer Price Index.  It was double what they expected, however, again, since oil was coming down, the market felt as though next month’s oil prices would tame the inflationary numbers that we’ve seen this week.

Frankly, I’m a little skeptical.  We may see a softening, however, we cannot seem to break through the 50-day moving average.  Also, the 40-day moving average (or trend line) is adding additional problems to interest rates breaking lower for us.  My thought is to quite delicately float into the week due to the price of oil, however, again, a truly itchy finger on the lock button due to the 200-day moving average for oil, and the 50 and 40-day moving averages for interest rates.  We will have probably moved into a lock position before the next article is released.  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – August 12th, 2008

Consistent Inconsistency

Here’s what’s consistent about this market…inconsistency!  Capping on the five day work week, we were down 53 basis points, up 9 basis points, up 16 basis points, down 22 basis points, and then up 19 basis points!  Like I said, this sort of volatile inconsistency is, at least, what has been consistent about the market and interest rates.

Work With A Knowledable Mortgage Banker

So, what do you do in a market like this?  Work with someone who follows the market closely and has your best interest in mind!  Why the sharp 53 point move, early in this last week?  Primarily due to the fact that the market didn’t like the tone set by the Fed at their meeting.  They didn’t really indicate whether they would hike rates at their next meeting or not.  This sent good ‘ole inflation fears rumbling through the markets.

5-Year High For Jobless Claims

Initial Jobless Claims for the week reported at 455,000.  Higher than the 420,000 the market was prepared for and moving the four-week moving average to 419,500.  A five-year high!  Wal-Mart reported poor earnings, and the European Central Bank and Bank of England left their benchmark interest rates unchanged.

Who Do You Trust When To Lock A Loan

As mentioned in other articles I have touched base on the fact that interest rates follow mortgage-backed securities other than the 10-year Treasury Note.  Many of my fellow loan originators will comment on where the yield of the 10-year Treasury is and it makes me smirk a little.  On August 6, FreddieMac reported very poor earnings.  This caused rumors to start that the Treasury may have to save FreddieMac.  So, Mortgage Bonds moved up, causing their yields and interest rates to move lower, however Treasury notes moved down, causing their yields to move higher. Who would you rather have your loan with, if it came time to make a decision on whether to lock or not…someone following the 10-year Treasury Note or Mortgage-Backed Securities?

Productivity Up

Non-farm 2nd Quarter Productivity rose at 2.2% annually.  Basically, companies are obtaining more work out of fewer workers.  This is good because it helps move the economy along even though we’re experiencing job losses.  This also helps with wage-based inflation, and as we know, inflation is interest rates worst enemy.

So, while we end this week up 19 basis points, it’s a nice opportunity to float interest rates and see what happens into the week.  With Retail Sales numbers, Consumer Price Index and Producer Price Index figures rolling out next week, you’d better have a trigger on the interest rate lock button!  We’re also dealing with a tough layer of residence at the 25-day moving average.  We’ve bounced off of it a lot this past week and trying to budge above it is tough…so an itchy trigger finger is highly recommended.  While we’re up though…float.

So, to be consistent, I’ll end my article appropriately…Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – August 5th, 2008

Big Changes On The Horizon

This week I’m going to be extremely brief with my comments on the economic reports and educate you a little about major changes in the real estate lending market.  So, let’s rock and roll!

First, the government lifeline extended to FannieMae and FreddieMac was signed into law by President Bush.  I’ll be addressing that in forthcoming issues.  Second, 2nd Quarter GDP come in at 1.9% while expecting 2.3%.  Previous quarters’ numbers were also revised lower.  Third, initial jobless claims shot up to 448,000.  This is a huge number, however, is somewhat misleading, as the government has laid out a new federal benefits program that will manipulate this number for about a month…interesting…Fourth, a better than expected jobs report showed we only lost 51,000 jobs.  WooHoo!  Unemployment moved to 5.7% so the better than expected jobs numbers, that’s right a loss of 51,000 is better than expected!  Fifth, I told you I’d report on the Fed’s favorite inflation gauge, the Personal Consumption Expenditure Index.  Core PCE moved to 2.3%.  This is outside the governments comfort zone of 1.0 – 2.0%.  Last, the Fed left the overnight rate unchanged at 2.0%.  They did indicate that they felt like inflation pressures should start easing toward the end of this year, however.

BIG Changes in Mortgage Insurance

The changes that have occurred, as of August 1 of this year, is in regard to mortgage insurance.  Years ago, you couldn’t buy a home unless you had twenty percent down.  Mortgage Insurance (MI) companies got involved and said if you let someone put five or ten percent down, they would insure a percentage of the loan amount.  This enabled more people to buy homes because they didn’t have to wait longer to save twenty percent.  This past week four of the seven major mortgage insurance companies changed their guidelines.  Basically, if you do not have a credit risk score of 620 or higher, you’re not getting a FannieMae or FreddieMac loan unless you put twenty percent down and avoid mortgage insurance all together.

FHA Will Return As “King Of The Loans”

Only one MI company left enables you to put five percent down.  All others are requiring ten percent down.  So, if you know of people that only have five percent down, make sure they continue to call other lenders if their lender is telling them that they HAVE to put ten percent down.  And there are a lot of major banks that are not approved or not contracted with this one, MI Company!   Refinances on investment properties will have to have twenty percent equity in the subject property.  Also, if more than 55% of your income is going toward all of your monthly obligations, than you can not qualify for a loan with mortgage insurance.

Monthly Guideline Changes

Now, these changes are changes to July’s changes.  We are seeing guideline changes on at least a monthly basis, sometime weekly.  Make sure you’re working with an expert in the field that follows these changes closely.  Also, make sure you have an option to work with an FHA expert!  FHA has new guidelines taking effect on January 1, whereby the buyer would have to put 3.5% down as opposed to the current 3%, but they have more flexibility regarding their qualifications than MI companies.  Until next week…