Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – Dec 2nd, 2008

Really?  We’re In a Recession?…

How do you like that?  It was officially announced, on Monday, that we’re currently in a recession and have been so since December of 2007.  Now, unless you work at Sierra Nevada Brewing Company, or read this article on a regular basis,  I don’t know how you wouldn’t know…

Last week I mentioned, “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.”  Well, Last Tuesday (one day after my article was written), we hit 5.125% (5.289% APR) for about two hours.  Rates were at their lowest of the year!

Don’t Toy With Rates

When you have good interest rates, it makes sense to preserve that rate for your clients.  Some people are waiting for pricing to get even lower and I strongly recommend taking advantage of opportunities when they knock.  For example, 5.5% (5.692% APR) is available exactly one week after the lows of the year and pricing, throughout the day, continues to get a little worse.

Let’s take a look at what happened.  First, Initial Jobless Claims came in at 529,000 moving the four-week average of continuing claims to 3.92 million.  This is a 25 year high, people.  Understand that there are a lot more workers today compared to 25 years ago.  But Come on!  25 years…I was a baby! The Fed’s favorite gauge on inflation, the Core Personal Consumption Expenditure Index oozed in at a year-over-year rate of 2.1%.  Nicely close to the 1.0% to 2.0% level the Fed likes to see.  Also, good for rates was China’s lowering of their benchmark rate over 108 basis points to 5.58%.  The most in 11 years!  Remember, when we lower our overnight, or benchmark rate, it’s generally inflationary ’cause the value of the dollar goes down, making it more expensive to produce items in a worldly economy.  However, if banks around the world are also lowering their rates, it gives us kind of a cushion to stave off inflation…and remember…inflation is the worst enemy of interest rates.

Good ‘Ole Ben Bernenke Speaks Out

The big mover was Ben Bernanke’s economic outlook speech to the Dallas Fed Conference and Henry Paulson’s update on the US economy.  Good ‘ole Ben Bernanke and “high rankin’ Hank” indicated that it’s possible that the Treasury would purchase agency debt.  Interest rates loved that news, and again, hit the lows of the year.  Then…late in the same day, interest rates took a U-turn to 90 basis points lower.  That’s a difference of 1.0% (almost) on the same loan rate just two hours later.  This was one of the craziest days in mortgage backed securities’ trading history!  Now, again, the 10-year Treasury note was up over 150 basis points.  Competitors that follow this index, instead of mortgage backed securities would have given you the wrong advice on when to lock in your loan.  This is another example of the two indices working uniquely differently than some economic analysts indicate.

Stocks Primed for a Rally

Here’s what I’m concerned about.  Generally stocks and bonds (interest rates) move in opposite directions.  So…if stocks are prepared for a major rally (which is quite possible with all of the loses that we’ve been experiencing) rates will suffer.  A big “however”, is this…December 9th there’s an announcement the may help the auto industry, the 16th there we may see another global rate cut and the Security and Exchange Commission may announce January 2nd, information that may rally stocks incredibly higher…stay tuned for all of this stuff!  The good news;  if all of this information helps investors feel better about US and world economies…home buying should pick up tremendously!

Now is the time…let’s get out there and buy.  Until next week…

This entry was posted on Tuesday, December 2nd, 2008 at 7:40 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.

Leave a Reply

Name (required)

Email (will not be published) (required)

Website