Danny Salas

Archive for January, 2009

Chico, CA Interest Rates Market Report – Economic Influences – January 20th, 2009

No Closing Cost Loans A Thing Of The Past

This week, I will discuss the market, but I also want to delve into why we’re not seeing the “no closing cost” loans of the past refinance booms of 1993, 1998, and 2002-2003.

Retail Sales Are UGLY!

First, Retail Sales figures totally sucked!  They plummeted by 2.7 percent, and when you take out auto sales figures, they were even worse.  So, adjusting the previous two months’ figures, we’ve seen six months of decline.  This is the longest decline on record.  Another concern was Deutsche Bank warned of another $6.3 Billion loss.  Citigroup announced an $8.29 Billion loss, and Bank of America announced their first loss in seventeen years.

Lowest Inflation Readings Since 1954

Now, the Initial Jobless Claims rose 54,000 last week to 524,000.  The four-week average of new claims actually lowered a bit to 518,500.  Remember when we were concerned with 362,500 claims?  And that with those numbers we might be in a recession!  Inflation is basically gone, as the Producer Price Index dropped by 1.9%, and with energy costs spiraling downward, you’d think interest rates would just be rejoicing.  But, I remind you that we’re in unprecedented and historical times.  Things aren’t working normally, markets aren’t reacting normally, and there’s just nothing normal about where interest rates will go speculating on where economic reports are measured.  Also, the Consumer Price Index showed its slowest pace of annual inflation since 1954.  Virtually NO inflation on the horizon would generally mean virtually the lowest interest rates we’ve ever seen, however, rates remained unchanged.

Fed Buying Bonds…Effect Is Unknown

Of interest this past week, the ECB cut its overnight rate to 2.0%.  This is a record low that should have lowered our interest rates, as the value of the dollar becomes stronger with each lowering of the Euro.  However, this isn’t a normal market…so, we did not see a significant lowering of our long term rates.  The Fed has purchased $33 Billion, so far, from their promise to purchase $500 Billion of Mortgage-Backed Securities.  The more the Fed Buys, the lower interest rates should move, however, there’s nothing normal about the Fed Buying Bonds, so we aren’t sure how interest rates and the markets will continue to react.

Longer Turn Times

Another word to the wise:  If you’re considering refinancing, there are a few things to take into consideration.  There is about 1/3 of the work capacity that banks have had in recent years.  So, when rates drop below 5.0%, they’re getting inundated with volume.  Therefore, since there are fewer banks with fewer people, they cannot handle this influx of loans.  So, they are artificially increasing their interest rates to stop the flood and make these loans manageable.  So be aware that refinances could take longer than a thirty day turn time.  Be prepared for two months, and if it closes sooner than that, you’re lucky.

Oh Yeah, No Closing Cost Loans

On the note regarding the “no closing costs” loans.  Let’s put it simply.  In the refi-booms of ‘93, ‘98, and ‘02-’03 banks learned that by refinancing at no cost, when they get paid off six months later because rates have dropped again, they didn’t have a chance to make any money on that loan.  So, as our ex-president once said, “fool me once…shame on,…fool me twice…um….”  Basically, our banks learned their lesson and they can ill-afford to make those mistakes again.  It’s an Amazing time to buy…I hope you’re considering it…as rates and values are at the lowest we’ve seen in decades!  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – January 13th, 2009

What’s In Store For Rates?

I’d like to take a look at the past year, and what 2009 may have in store for interest rates. 

My first article last year I mentioned, “The economy may be in more of a slump than some thought.”  I kept reporting, throughout the beginning of the year, that the unemployment claims were showing signs of a recession, about 10 months before the Federal Government formally announced that we were actually in a recession.   

How Volitile Will The Markets Be?

I mentioned numerous times that we would have a really bumpy ride and that the markets would be extremely volatile.  This would require a keen interest by your mortgage specialist to keep an eye on when a good time to lock would be.  That advice proved poignant throughout the year.  Also, I mentioned that S&P companies would take a 9.8% loss.  Well, the loss was even greater than I had imagined. 

2009 Answers

So, what’s up for 2009?  You know that the economy will struggle through the year, but hopefully pull out of its depressed state by this time, next year.  At least I feel as though there will be more of a feeling of optimism in the air, about the future.  It will be truly interesting to see how the new Receivership, structured by the Federal Government taking over FannieMae and FreddieMac, will pan out when the buy Mortgage-Backed Securities.  Will interest rates like the move?  Will rates move lower before the buying occurs, or after?  This will be an interesting new ideal, since it has never happened in history before.  Knowing investment markets, however, I think rates will lower, just before the buying occurs.  Then, the morning after, we’ll see lower rates, but by the day’s end, rates will adjust higher while investors cash in on their opportunities.  Then; the same thing every Thursday that the Fed plans on buying these securities.  That’s my take…but because it’s never happened before, we’ll have to see…

The job market, unfortunately, is going to get worse.  Hopefully, the new administration will have a new “green” concept of providing energy that will employ millions.  The only concern holding back newer “green” technologies is that the cost of oil has come down so much this past few months.  I hope it doesn’t cause blinders for the future of our children.  That’s where I see the future moving to, if there’s not too much resistance to the new ideas. 

Housing Prices To Come Down More

On the housing front, expect prices to continue to stay low, as the inventory of bank owned properties swells.  I think this will be one of the best times to purchase a home, in the history of real estate in the United States.  Values are out there, rates are down, The median priced home has come down significantly, in our area, but FHA loans are still up to $293,500.  The 3.5% down, and the seller (or bank being the seller) willing to pay closing costs to get rid of the property and get it off their books, opportunities are just too great to NOT take advantage of.  Purchasing a home and having the payment be just about the same as your rent payment, but with all of the benefits of home ownership has never been more opportune. 

Last, expect more volatility.  That, you can be assured, will continue through the year.  I hope 2009 brings many blessings to our community, our area, and our businesses and families.  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – January 6th, 2009

Happy New Year Everybody!

What an unprecedented year 2008 was!  Moving forward into the year I wish everyone peace, love, and prosperity through what should be a challenging year for all of us.  But with these challenges there should be opportunity, a lot of it.  Rates are lower levels than I have ever seen (owner occupied).  And with values so low, and sellers really needing to sell, even with investment purchases, you can have a seller pay two percent of the sales price to help get you into a great interest rate on investment purchases, as well. 

Butte County is NOT a high Cost Area

Let’s touch base on a question that I’ve been getting calls on regarding loan amounts over $417,000 but under $625,500.  Butte County is NOT a high cost area, and therefore does not qualify for the higher loan limits over $417,000.  Therefore, there is no secondary market to sell these loans to, for our area.  So those interest rates are significantly higher than the rates under five percent that we have been seeing occasionally, these past few weeks. 

Rates at 3.5%…I Don’t Think So

Expect continued volatility throughout at least the beginning of 2009 and probably through the summer.  There are rumors afloat that rates will reach 3.5%.  I’m not sure about this, frankly.  While of course, anything’s possible, here’s my take on this.  If it’s the Federal Reserve’s goal to buy mortgage backed securities until interest rates are 4.5%, than why would they continue to buy then to force them lower?  Maybe they’re starting to feel the crunch that 4.5% wouldn’t be low enough?  I’m just speculating, but I guess that is possible.  It will definitely be fun to watch. 

Day After Day

Also, talk about confusion in the market…The Fed promises to buy bonds, to lower rates, but GMAC missed a filing deadline to become a bank and qualify for rescue financing, the next day, GMAC receives a $6 Billion lifeline from the Treasury and stocks love it; at the cost of bonds (and therefore interest rates).  Then the very next day after that, the Fed makes a firm announcement that they will buy $500 Billion of Mortgage Backed Securities starting in January through June of 2009.  Rates, in turn, loved the news.  It’s a new game of tactics for prognosticating where rates will head. 

Peace In The Middle East

The unfortunate tension and military action in the middle-east has set the stock market higher, earlier in the week.  The energy sector can benefit from tension that creates higher crude oil costs.  But, conversely, you can also have a “flight to safety” into the Bond Market that can help rates.  So, I think I’d rather see peace in the middle-east, as oppose to energy sector benefits in the stock market.  I’d even rather see higher interest rates than no peace.  But that’s me.

LOCK if You’re Under 5.0%

How long will we stay under five percent?  Last time it was for an hour and a half.  Is your file with a lender and ready to lock?  If not, I’d get your name in immediately.

It’s gonna be another volatile, crazy year and I wish peace and harmony to all of you.

Until next week…