Danny Salas

Archive for November, 2008

Chico, CA Interest Rates Market Report – Economic Influences – Nov 24th, 2008

PIMCO & Paulson Buying Up Bonds

Toying with the 200-Day Moving Average

The 200-Day moving average has been a force to recon with for two straight weeks.  We’ve actually touched it thirteen out of fourteen days.  The Consumer Price Index (CPI) fell to a monthly record low.  Particularly due to an 8.6% decline in energy prices, it left the year-over-year Core CPI at 2.2%.  Remember, the Fed wants to see inflation figures between 1.0% and 2.0%, so we’re getting to comfortable, or tolerable levels.

Bonds Poised For Being Purchased

Some interesting and exciting news on the bond front!  Giant hedge fund Paulson & Company indicated that their Advantage Plus fund has started purchasing beaten up Mortgage Bonds.  Also, PIMCO, the nation’s largest purchaser of Bonds is starting to jump in the action.  This is exciting because it shows signs of potential better pricing around the corner.  This also helps with the optimism of how the credit markets may be feeling a little healthier in the near future.  Their rumor that the Central Banks from around the world are poised to have another rate cut throughout the globe.  This could help stabilize the US Dollar a little more and continue to help with the cost of Oil (as oil is traded in dollars).

Deflation:  What Happened to Inflation?

Last week I indicated I would touch base on the Minutes from the Federal Reserve’s October Meeting.  There was some concern over how the economy is performing and they lowered their future targets for employment figures and economic growth.  The real news from the minutes was the mentioning of the big “D” word.  You may remember me talking about deflation when Alan Greenspan was still at the helm.  Deflation is when prices drop, mainly due to decreases in money supply and credit.  You’ve certainly been reading about problems with credit, recently!  With the economy coming to a halt, some are saying we’re headed toward a deflationary recession.  In a deflationary market, investors hustle to purchase safer, fixed instrument, like Bonds and Mortgage Backed Securities.  When Greenspan was mentioning the “D” word, mortgage backed securities gain 400 basis points.  IF this all pans out, we may be seeing much lower interest rates in the few months ahead.  But with all of the other major concerns, it may be short lived.  If you’re considering a potential refinance, be in close contact with your mortgage broker or banker in the next few months.

362,000 Jobless Claims Is Recessionary…

Initial jobless claims are out of control again.  542,000 filed for unemployment compensation this past week, bringing the four-week average to 506,500.  The highest since January of 1993.

Fed Reserve member Jeffrey Lacker spoke this past week and indicated that the economy should start turning around in 2009.  With low interest rates, low energy prices, less drag from the housing industry he noted, “Many analysts expect the US economy to regain positive momentum sometime in 2009.  That strikes me as a reasonable expectation.”  Finally, some good news!  Citigroup is stoked this week.  The government’s giving them a $306 Billion loan and $20 Billion cash for a $27 Billion share hold that pays 8%.  This is quite a deal, but the government should fair well, over time.

Hey, it’s a great time…get out their and buy.  Values and rates are down…Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – Nov 18th, 2008

Rates Go Against Economic Data

Year In Review

Pardon last week’s brief hiatus, as the day was enjoyed by me and my family, as we celebrated Veteran’s Day together.

The Economic Stimulus Package

Let’s take a brief look at what has transpired over this past year.  First, with the Credit Crisis in full blown force, Congress enacted the Economic Stimulus Package.  Basically it raised conforming loan limits to 125% of the Median Priced Home for the area or kept them at $417,000, whichever was LESS.  So, our median priced home was $320,000.  125% of $320,000 is $400,000, so our conforming loan limits remained at $417,000 for Butte County.  However, HUD also increased the FHA loan limits to 125% of the area’s Median Priced Home.  So, FHA loan limits for this year were $400,000 after the Stimulus Package was approved.  As mentioned in a previous article, it also changed some of the mortgage insurance calculations depending upon a borrower’s credit risk score, down payment amount, where the down payment funds were coming from.  Conforming loans with also were categorized by a new type of risk based pricing.  This was also based upon credit risk score.  So, if a borrower had a score less than 740, unless you put 20% down or more, there were new add-ons to the cost of a loan, never seen before this stimulus package.

Then came HR 3221

The Housing and Economic Recovery Act of 2008.  Essentially, this got rid of most 100% down programs (however there is a new one that can still obtain 100% financing and the seller can pay 6% of the sales price toward your closing costs and paying the interest rate down).  It changed FHA down payment requirements to 3.5% as opposed to just 3%.  It changed the Economic Stimulus Package by lowering the HUD and Conforming loan limits to 115% of the area’s median priced home.  However, HUD determined the median priced home to be only $255,000.  That’s a 20.31% drop on values in one year.  So, that puts FHA loan amounts for the year 2009 at $293,250 for Butte County.

Gov’t Takeover of GSE’s

On September 6, the Government took over the Government Sponsored Enterprises FannieMae and FreddieMac.  With the turmoil of the Fed’s Bear Stearn’s Bail out, banks failing left and right, the formation of Term Auction Facilities, the announcement of PIMCO to stop buying bonds, the world following suit, nowhere to sell mortgages any more, congress set up a $200 Billion line of credit for banks to guarantee that banks could sell mortgages so that they had more money to lend for home buyers to keep an industry alive.

Today, Ben Bernanke and Henry Paulson are speaking to Congress about the effects of the $750 Billion bailout.  Apparently, their words are expected to be promising.  I’ll touch base on this in next week article.  Interesting note:  again, we see interest rates doing somewhat the opposite of what they’d normally do.  Core producer prices rose by 0.4% versus expectations of 0.1% which moved us to the highest 12 month gain since 1989.  It seems as though the markets are ignoring this, as they feel that the very high energy prices we were seeing mid-year are being felt today.  Since oil has come down and therefore energy prices, the scary reading is being somewhat shrugged off.

Also next week, the Producer Price Index and the release of the previous FOMC minutes.  Get out there and buy…values are down, as well as rates…it is time…Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – Nov 4th, 2008

Volitility Leads To Lower Rates For the Week

Interest Rates “Come About”

Interest Rates made an abrupt U-Turn in positive territory on Voter Tuesday (probably because Obama was leading in the polls).  Actually, it looked as though the Monetary Policy Committee overseeing the Bank of England was poised to lower their overnight rate by 0.5% points to 4.5%.  They also have another meeting Thursday, where they are expected to lower it again by an additional 0.5% points.  This helps with the value of our dollar, particularly after we have continued to lower our overnight rate to record lows.  Also expected to join in on the rate slashing is the European Central Bank.  They’re meeting in Germany this coming week.

As I wrote this article, rates finally moved into positive territory, after eight straight days of ugliness.  Let’s go back to last week and see what was occurring.

Up, Down, Up, Down

First, Wednesday was Fed Day.  Everyone expected a 0.5% point cut but the stock market anticipated this on Tuesday and had a nice 900 point rally, so long-term rates actually benefited Wednesday, after being beaten on Tuesday.   This type of volatility is not only hard to prognosticate, it’s down right impossible. This month alone we’ve moved up or down in the stock market so ridiculously and mortgage backed securities have moved over 300 basis points in six days.  That’s 3.0% points on a mortgage loan.  But, we’ve now moved back about 350 basis points in four days.  If my computer screen were any closer, you could make a bobble-head out of me.

OK, It’s Official…

But in the end, the Fed did cut the rate by 0.5% and long term rates paid the price, but minimally.  With Hong Kong and Taiwan cutting their rates, it helped stabilize the dollar and therefore not too much weight was given to the cut.  Oh yeah…it’s official…we’re in a recession.  That’s right!  The textbook definition of a recession was met this past week with the documentation of two consecutive quarters of a negative Gross Domestic Product reading.

The Fed’s favorite gauge on inflation, The Personal Consumption Expenditure Index (PCE) brought some good news (uh, for rates that is).  Even though the Fed would like to see Core Inflation between 1.0  to 2.0%, the Core PCE dropped from 2.5% to 2.4%.  This was the weakest spending performance by consumers on a quarterly basis in over thirty years.  Also, the Bank of Japan ended up lowering their benchmark interest rate to 0.3% to help stave off any further inflation in their country.

Opportunity Knocks

So, when we see a U-turn in rates, as we saw on Voter Tuesday, it’s wise to take advantage of the opportunity and lock clients in.  Why?  Well, the foreign investors that I’ve been writing about for years, that loved to put money into our mortgage-backed securities, are kind of sitting on the sidelines and waiting to see the implications of the Treasury Departments’ guarantees.  Until there’s more comfort in that arena, don’t expect significant changes in interest rates.  The opportunity knocked on Voter Tuesday (let’s hope in more ways than one) and that was a good time to lock.  We do have some support, now, above the 25, 50, 100 and 200-day trend lines, but with all of the newness and volatility in the marketplace, who knows when we’ll have more opportunities like this one.

Values are down, rates are good…what are you waiting for?  NOW is an unbelievable time to buy…Until next week…