Rates Are Too Low NOT To Lock

Bernanke Says What Needed To Be Said

It seems as though everyone has been praising the economic recovery.  We’ve hit bottom, and everything will be turning around.  I haven’t felt quite so comfortable with that.  Monday morning, statements from Good ‘Ole Ben Bernanke echoed these concerns.  He admited a struggling labor market, a slow recovery, and unemployment concerns that will continue to drag on any economic recovery.

Confusion Regarding Jobless Claims

His comments were taken with relative ease, in the stock market, however, bonds reacted appropriately.  What I mean is that some investors felt as though Bernanke was stating these facts, just to curb the stock market downward a little.  Some feel there are concerns that the stock market is creating another bubble, based on media hype and a misunderstanding of the labor figures that I’ve been talking about.  Even though Jobless Claims are coming in lower and lower, there are still a half-a-million people filing each week!

Inflation Currently LOW

October’s Producer Price Index’s (PPI) was lower than we’ve seen since July of 2006.  This index measures inflation at the wholesale level, and it’s showing that inflation, so far, is currently not a concern….Then…the very next day…

Inflation Currently A CONCERN

October’s Consumer Price Index (CPI) was hotter than expectations.  This index rose 0.3% and was only expected to rise 0.2%.  The Core CPI which takes out energy and food prices, came in at a 0.2% increase, as opposed to the 0.1% expcted.  The Year-Over-Year Core CPI reading was 1.7%.  This is, actually, a pretty cool number, however, much higher than the 1.4% reading that we were receiving just two months ago.  The catch, here, is the Cash-For-Clunkers Program’s clever accounting priciples, enabing the industry to write off the tax rebates as a discount in car prices.  This truly artificially reduced the CPI numbers, however, the market sometimes doesn’t see things the way I’d like!

Housing Starts

529,000 permits were issued, yet 600,000 were expected.  I think, what might help with the current housing situation, is if we laid off a little, on the new construction, giving the current market time to buy up what inventory is currently available.  Keep in mind, however, that with the lower housing permits, builders may have wanted to wait and see how the tax credit extension would fare, before going out and investing in building new homes.  Food for though…

Locking Advice

I’d lock. Even though we’re sitting pretty, we have to ackknowledge that Rates are going up…and soon…mark my word!

Related Must Reads

The Media Just Doesn’t Get It
Cash For Clunkers Accounting Principles
Why Buy Now? And links to Tax Credit and Extension Answers

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We're Floating with our Finger on the Lock Trigger

Mixed CPI Report

The Consumer Price Index came in hotter than expected.  This usually hurts interest rates, but when you take out the energy costs and food costs the Core CPI was right where the government expected at 0.1%.  This reading should keep retailers from increasing their prices for merchandise, and therefore keep inflation under control.  And don’t forget that inflation is interest rates worst enemy! 

Cheeseburger On Wall Street

Oh wait…that’s Jimmy Buffett, not Warren Buffet!  Warren Buffet mentioned, today, that he thinks that the worst of the recession is over, and that we’re heading toward recovery.  Coupled with the fact that Good ‘Ole Ben Bernanke stated, yesterday, that he felt that we were headed toward recovery and that the recession is, “likely over,” the stock market has reached a new high for 2009, this morning.

Interest Rates

After bouncing off the 100-Day Moving Average, Rates moved up to the 200-Day moving average and quickly richocheted off of that.  So Rates are kind of trapped right now.  So, it’s an opportunity to float, but we’ll keep our finger on the lock button, just in case.

MBS's Are Nervous About Inflation

Cash for Clunkers”

Retail Sales jumped 2.7% last month, primarily due to the $4,000 gift to consumers to purchase a new vehicle, as opposed to continuing to drive their gas guzzling hunk ‘o junks.  More help was given to Sales numbers when retailers discounted their “back-to-school” items.  This information was, obviously, pretty hot, keep in mind…we’d have to see a few months of reports like this.  Not just one, to really impact the economy, and let’s face it…the jobs numbers are more important than this information.

Producer Price Index

August also show us an “on fire” Producer Price Index.  This was primarily sparked by the biggest surge in gas prices in TEN YEARS!  We’re hoping to see this cool down a bit, and perhaps we’ll see more information in tomorrow’s Consumer Price Index.  The Producer Price Index shows inflation at the wholesale level, like manufacturing.  Something to consider, here, is that during the recession, many manufacturers were slow, because the consumer wasn’t buying.  So, stores left items on their shelves, for longer periods of time.  Now that those items need to be replaced, it looks like manufacturing is way up…but is the consumer really buying?  Tomorrow will help point us in the right direction.

Locking?

Over the short term, it would make sense to lock.  Our earlier talk of lower interest rates, due to third quarter earnings from corporations, has been somewhat swept under the rug by the Chinese Tariff on Tires.  There’s always something in the mix, that can shake up markets.  But if you’re happy in the low 5 percentage rates…I might take advantage of what’s available today.

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…

Float Cautionsly Into Next Week

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…

Inflation, Inflation, Inflation

Inflation, Inflation, Inflation

seems to have replaced the old adage, “Location, Location, Location,” at least in terms of the Real Estate Finance World.  Every time inflation rears its ugly head, we’re hit by higher interest rates.  It feels like we’re playin’ a game of Gopher Slam every time one pops up wearing an inflation T-shirt.  This past week the Consumer Price Index (CPI-Gopher) was wearing a shirt that read 0.7%.  Core CPI-Gopher (no shirt) saw a hotter than expected 0.3% inflation gain.  Another fact, that I’ve asked you to pay attention to in earlier articles, is the Treasury International Capital Report showing the foreign demand for our securities is getting weaker.  June showed $67 Billion in foreign investment compared to $115 Billion one month earlier.  This is also inflationary, as it gives added pressure to a weaker Dollar. 

Last week I mentioned the 25-Day, 50-Day, 100-Day and 200-Day moving averages.  Interest rates were attempting to touch or move above these trend lines, however, unfortunately, we just bounced right below them and we continue to fall.  A lot of the movement in negative territory is coming from stocks doing well.  JPMorgan Chase, Coca-Cola and United Technologies all reported earnings that were better than what was expected. 

Freddie Woes

FreddieMac is trying to deal with their woes by possibly selling $10 Billion in new preferred and common stock shares to raise capital and avoid a government take-over.  But that may be too little-too late and bonds fell an additional 47 basis points after that announcement.  They hit yearly lows on Friday, causing interest rates to move above the 6.641% APR range.  The only good news about this is that when bonds hit these all-time levels, they also act as a layer of support, like the moving average trend lines.  So, once we hit these lows, we should bounce back up and see a leveling or correcting of these higher interest rates. 

But, you do have to contend with comments that important people make. 

Like last weeks mentioning of the Senator that whispered about IndyMac troubles.  We know how that faired.  This week Philadelphia Fed President Charlie Plosser said, “inflation is too high.”  Well, we know this.  Some times I wonder if these guys just like seeing their names all over the papers and websites of the world so much, that they don’t thing how their comments will impact their industry, economy, or country in general.  At least I can come up with something a little fun like, “inflation, inflation, inflation.”  The good news is that he did come back and say that the Fed must, “back their words with action” and increase the overnight rate.  This helped oil prices to below $130 per barrel. 

Rates will take direction, the rest of the week, from stocks.  Also, Treasury Sectretary Henry Paulson said the Congress will pass a bill to help with the confidence in FannieMae and FreddieMac this week.  We’ll report on that next report.  Until next week…

Consumers Are Spending Less

Bernanke Toying With Inflation

As I write this article, it’s Tax Day.  April 15!  So, if the tone of this article rubs you the wrong way, let me apologize in advance. 

Last week the Federal Reserve Open Market Committee’s Minutes were being released as I wrote the article.  These minutes produced a behind-the-scenes look at the past FOMC meeting and a closer peak at the dissenting voters and Fed Presidents Richard Fisher and Charlie Plosser.  Both felt as though inflation was still quite a concern.  “Inflation expectations could potentially become unhinged if the Fed continued to lower the funds rate in the current environment,” they both felt.  Remember that inflation is interest rates’ worst enemy.  Another interesting note is that this was the first time since 2002 that two FOMC voters dissented on the same vote.  It will be interesting if Good ‘Ole Ben Bernanke can keep the ship sailing smoothly, or if there will be mutiny at the helm…

Jobless Claim Numbers A Surprise

This last week Initial Jobless Claims reported 357,000 new claims.  This is much lower than what we’ve been seeing lately, however, remember that the four-week moving average is what we’ve been shocked by…and sure enough those numbers rose to 378,250.  This is the highest four week average since October of 2005.  Remember that we’ve fell into two recessions when this reading was previously 362,000.

The European Central Bank left it’s overnight rate untouched at 4.0%, but the Bank of England cut their overnight rate by .25% to hopefully stimulate their economy.  They’re kind of going through the same thing that we are, here in the United States. 

This last week General Electric reported worse than expected earnings and indicated that their future earning weren’t looking too hot also.  Their excuse:  The credit crunch and slow economy.

Consumers Tightening Their Belts

Generally, I only mention reports like the University of Michigan Consumer Sentiment Index when it may be alarming, or interesting to mention.  Well, April reported a number of 63.2.  Who cares, you might ask!  Well, this level is a 26 year low and was far below what the markets thought.  Also, this indicates that consumers may not be too willing to purchase large items, now or in the near future.  Another indicator that the economy may still be slowing, but a 26 year low?  Retail sales increased slightly.

Yea!  We’re Only Reports Losses in the “Millions”

Wachovia, the fourth largest bank in the U.S., reported a $393 million dollar loss due to the subprime fiasco.  Isn’t that great?!!!  We’re only talking million of dollars now, as opposed to the billions that have been coming out in recent issues.  Whew!  Isn’t that just great!

The Producer Price Index (PPI) moved up 1.1% in March thanks to the record breaking oil prices and oil industry salaries that we’ve been seeing.  Not to mention food prices being at a 17 year high.  More importantly, the Core PPI was reported at 2.7%.  This is a little scary, since the Fed would rather see inflation reading of 1-2%.  The CPI  will be reported on next week.  Hopefully, that will be more in line with the 1-2% inflation reading that the Fed is looking for, as increases in wholesale inflation (PPI) don’t always get past on to the consumer (CPI).    We’ll report on that next week…Until then…

Bonds All OVER The Place

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…

Another Roller Coaster of a weak regarding the stock market and interest rates!  The Consumer Price Index (CPI) came in at 0.3%, slightly higher than expectations of 0.2%, and the highly watched Core CPI came in right at expectations of 0.2%.  Unfortunately, the year-over-year numbers rose by 4.1%, mostly due to high energy costs, but even pulling those out the Core CPI was at 2.4%.  Remember, that the Fed wants to see their inflationary reporting levels between 1 and 2 percent.  And more recently, these numbers have been lingering around 2.1%, so this information is alarming.  Again, it’s gotta be a tough area to be, with inflation lurking about but with the economy slumping so much.  I feel for Bernanke and this leads to an amazingly volatile market.  Bonds have moved around 190 basis points upwardly, since Christmas, causing rates to be priced extremely aggressively.

Bernanke spoke to the House Budget Committee last week and told them that he sees no recession, but slow growth.  He confirmed that additional rate cuts may be required but indicated that he knew that inflation is still a risk.  He said that overall headline and core inflation should slow, however.

The Index of Leading economic Indicators (LEI) for December was -0.2%; less than the

-0.1% expected.  This low reading is a true sign of a recession around the corner.

Then the big surprise hit. 

I mentioned in a recent article that there was some discussion of an emergency meeting, but the Fed, even before their scheduled January 30 meeting…and in a surprise move on Tuesday, January 22, The Fed cut the Fed Funds Rate by .75%, lowering it to 3.5%.  While we were enjoying the Martin Luther King, Jr. Holiday, the world markets sold off their stocks sharply, fearing a US recession.  This was the first emergency meeting by the Fed since September 17, 2001 and the largest cut in rates since 1984. 

Here’s the Fed’s Statement from the morning of January 22:

The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3 ½ percent.  The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.  While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.  Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.  The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.  Appreciable downside risks to growth remain.  The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Discount Rate Hits 4.0%

The Discount Rate was also lowered to 4.0%, and on the 30th’s meeting, they may lower it even more.  The stock market plunge on Tuesday helped bonds and interest rates to move to their best levels since June of 2005.  Time to Refinance?  Just keep in mind the volatility in today’s market.  Until next week…

Horrible Retail Sales brought rates down

The Fed’s Interest Rate Decision and Policy Statement…

…was released on Wednesday, and as expected, the Fed did nothing to the overnight rate.  You’d think I would be elated.  You might wonder if interest rates moved below six percent for no points.  Unfortunately, the “tone” of the meeting wasn’t as positive as the decision itself. 

Good ‘ole Ben Bernanke and his bond-buying buddies believe wage-based inflation better be controllable before bonds aren’t bought in favor of better bets with stocks (huh?).

That being bellowed…The market reacted negatively, because it was looking for inflation to be commented on favorably by the statement.  Even though recent data from wage information and inflation has been relatively friendly, and the economy is slowing somewhat, the Fed is mostly concerned that inflation will, “fail to moderate as expected.”  So even though the Fed admitted that they “expect” inflation to moderate, their concern is that it won’t.  How’s that for the power of one’s words having an effect on not only our nation, but the world! 

Retail Sales were at their worst level in seven months. 

These are sales for everyday items like clothing, cars, etc.  One reason is undoubtedly the price of gasoline.  When the price of gas goes up, expect that price of everything else to go up with it.  Over and above that we had a really cold winter.  Remember last month I talked about people finding it difficult to go out and buy a home in the cold weather, well that cold weather froze crops.  Also, many corn products are being converted to other fuels, which is causing a shortage of corn which increases its value.  

By the time you read this article the oh-so-important Core Consumer Price Index will have been released.  With all of the past inflation information showing that inflation is moderating we hope to see a favorable number.  The 200-day moving average has been a HUGE level of support for mortgage-backed securities, so it would really have to be a surprise on Tuesday to break through that trend-line.  But if it is bad news we could see higher rates and a difficult time breaking back above that 200-day moving average.  

Also, housing information is expected on Wednesday with the release of Housing Starts and Building Permits.  As the weather warms over the nation, these figures should start looking more favorable.  It’s an exciting time for interest rates.  I hope that next week we’ll be talking about inflation looking in total control and bonds breaking above the 25, 50, and 100-day moving averages to bring a trend of lower interest rates.  Until next week…