Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – August 28, 2009

The Fed’s Favorite Gauge on Inflation

The Personal Consumption Expenditure Index (PCE) came out today.  It’s the Federal Reserve’s closets monitor regarding where inflation lurks.  The Index chilled at 0.1% growth.  That’s pretty measly, and it’s the slowest inflation readings since 2003.  Inflation is interest rates’ worst enemy, so this information should help keep rates low for a little while.

“Cash for Clunkers”

Spending’s up a bit.  Helped by the now complete government program to give cash incentives to help buyers get into new cars.  Heard something pretty interesting about their website.  I guess that the Patriot Act Enabled the government to get into anyone’s computer and check out everything they were up to.  Cash for Clunkers website, is an invitation, once you’re on the site, for the government to take a nice peak at what you’ve been doing lately.  Nice, huh?

Consumer Confidence Up?

According to the private Reuters / University of Michigan Survey consumer confidence was down.  However, forcasting into six months from now, the consumer feels confidently that we’re on the right track.  Even though these same people are in the worst financial situation since the survey began in 1946. 

Stocks Up Eight (8) Days

Stocks have increased over the last eight days for the first time since April of 2007.  I think they’re due for a reversal.  Bonds, and therefore, Interest Rates, should benefit. 

Next Week

Payroll Figures will be the most important information coming out next week.  Have an excellent weekend, and my recommendation is to float into next week, with (again), an itchy finger on the lock button. 

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

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…

Chico, CA Interest Rates Market Report – Economic Influences – Sept 30th, 2008

Cheeseburger In Paradise…Uh…Wrong Buffett…

When Warren Buffett’s Berkshire Hathaway decides to invest $5 Billion in Goldman Sachs, you just know everything is honkey dorey, right?  Oh to be so lucky!  Just when you think that this might just be the vote of confidence that Wall Street might be looking for, we stumble…again.

“If I should stumble, catch my fall.”  Billy Idol had it right…but who’s going to catch this behemoth falter?  Taxpayers!  I have stated in previous articles that some of the practices that have been presented to the Treasury and Federal Reserve have been pretty impressive, however, Congress’ latest delay in the rescue plan is scary, but prudent.  Hopefully, we’re not experiencing political ridiculousness only to gain clout with voters at such an important time.  But we do need to be certain that the rescue plan is understood, and understood well.  I’ll come back to this…

WAMU, No, Chase, No, World, No, Wachovia, No…Who?

Initial Jobless Claims topped 493,000 for the week.  This is the worst levels in over seven years.  It’s getting pretty ugly for the labor market too.  Washington Mutual was actually seized by the Office of Thrift Supervision.  JPMorgan Chase will purchase it for $1.9 Billion.  Washington Mutual?  Did you say Washington Mutual?  Yes, I said Washington Mutual.  About a year and a half ago they were considered one of the strongest lending institutions in the country.  We are definitely in unprecedented and historic times.  So, remember when World was purchased by Wachovia?  Yeah…you can see who’s banking there and who’s losing a little hair on their scalp from the windows of Broadway Heights restaurant.  The Wachovia sign looked so out of place from the World Savings and Loan sign that was there forever.  Well don’t get used to the white, green, and light blue insignia from Wachovia either!  That’s right…they just got purchased by Citigroup.  The FDIC will get $12 Billion in preferred stock and warrants on this deal.

Oh yeah…back to market indicators.

The Fed’s favorite gauge on inflation, the Personal Consumption Expenditure Index was reported on a year-over-year level of 2.6%.  This is WAY out of the Fed’s desire to be in between 1.0% and 2.0%.  We haven’t seen inflationary signs this alarming in the PEC since 1995.

Then US stocks saw the worst decline of the Dow Jones Industrial Average in its 112 year history.  This:  due to the indecision of the House and Senate to agree on the $700 Billion rescue plan.  Now what happened here is very interesting.  Investors fled from stocks, but didn’t put their money in mortgage-back securities (which is often the case).  Instead, they moved money into Treasuries.  Again, if you didn’t follow the market closely, you could be misled insofar as where you think rates might go, if you base your decision on locking in an interest rate on the 10-Year Treasury Bill Yield, as opposed to mortgage-backed securities.

So coming back around to this rescue plan, you have to trust the our leaders see that we must do something to free up the lending system and keep the industry moving forward without a collapse.  Just like the FannieMae/FreddieMac takeover this isn’t a plan to bailout Wall Street altogether, just a bandaide to keep the markets moving forward until we can get through these unprecedented, historic times.  I know where I’d put my money…REAL ESTATE!  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…