Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – October 28, 2010

Rates On The Rise

Government Stimulus Causing Rate Increases

For the most part, you have probably seen mortgage interest rates start to rise over the past few business days.  The new government stimulus program is getting ready to roll out, in November.  This will, most likely, cause interest rates to rise.

Inflation TOO LOW!

The reason sounds simple, however, you generally read that inflation will cause rates to increase.  On the opposite extreme, there is deflation.  I’ve written about this, in the past, however, the government has been announcing that they are very concerned that the level of inflation in the country is uncomfortably low.

What does this mean?

In order for an economy to grow, there must be inflation.  Inflation, in the U.S., is virtually non-existent, and we are now approaching a point where deflation is becoming a major concern, and a real threat to the economy.  The government has stated that they are committed to preventing this from happening, and they are stepping in with a new round of stimulus.

How This Differs From The $1.25 Trillion Stimulus

The initial stimulus program, when the government pumped $1.25 Trillion into buying Mortgage-Backed Securities, to keep interest rates low, was to also enable businesses and consumers to borrow money.  This round of stimulus, launcing in November, is particularly focused on increasing prices at the Wholesale and Retail Level, forcing items to cost more, and therefore, eluding a downward spiraling ecomomic distaster, by preventing deflation from occuring!

Is This Gonna Work?

What is critical for you, as a consumer and professional Realtor to understand, is that inflation is the nemisis of bonds and Mortgage-Backed Securities.  Mortgage-Backed Securities are the determining factor regarding interest rates, and if the government is committed to increasing inflation, then mortgage rates have nowhere to go, but up.

The Writing’s On The Wall

I’ve written before that many times, speculation will have an impact on interest rates, more so than actual economic statistics.  The government stimulus package will start in November, yet we have already seen an increase in over 50 basis points, for a loan’s cost.  That translates to approximately, 1/2 Point on a real estate loan.  And this is just in the past two weeks!

What Should You Do?

I am urging you to please contact me right away.  I can provide you updated financing information, on your particular situation, or your buyers’, so you all can make an educated decision on what your next step should be.  I just want to be certain that you are kept up to date on what is happening, and that you understand how the changing rates will impact you today, or in the future.

Related Must Reads

Deflation Concerns, One Year Ago
Rates Were Expected To Go Up A Long Time Ago…When I Was Wrong

What to Subscribe To:

Get Our Twitter Updates
Get Our Blog Blast
Become A Fan On Facebook
Connect With Us On Linkedin

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…