Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – February 26, 2010

4th Quarter GDP Excites

Dissecting The GDP

A ton of economic information to report on, this morning.  First of all, the 4th Quarter Gross Domestic Product grew at a whopping 5.9%. The Best GDP reading in over six years!  You’d think that Stocks would surge and interest rates would move up on the great economic news. However, let’s dissect this figure.  The gains are primarily due to businesses re-stocking their shelves, after the government “Cash for Clunkers” Program and NOT buying during the late 2008 and 2009 seasons, due to the recession.  Also, when you measure consumer spending (the most important component of GDP), we had a measly 1.7% growth.  Not so whopping!

Existing Home Sales

January’s Existing Home Sales were expected to be at 5.5 Million Units.  Unfortunately, the number attained was 5.05 Million.  Inventory of unsold homes moved to 7.8 months.  Weather, back east, probably had a lot to due with this number.  These numbers are not as promising as we’d hoped, and shows that we’re still trying to maneuver out of this slump.

The Chicago Purchasing Managers Index (PMI) and Consumer Sentiment, both came in at expectations.

Where’d All The $ Go?

This last week, the government purchased purchased $11 Billion in Mortgage-Backed Securities.  So, there’s only $44 Billion left, in the Government’s $1.25 Trillion Mortgage-Backed Security Purchase Program.  Wow!  That’s alarming!

Locking Advice

We're Still Floatin'

Poor economic activity reduces demand for capital causing Stocks to lower, which causes Bonds to rise, which, in turn, causes a reduction in interest rates.  If this structure continues, the goods news is that mortgage interest rates would probably move lower.  Unfortunately, the bad news is that this could have a very negative effect on the job market.  Which in turn has a negative effect on the housing market.

Related Must Reads

Advanced GDP Hot! An October Take On GDP
More Jobs – Better Housing
The Effect of $1.25 Trillion…Gone

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Chico, CA Interest Rates Market Report – Economic Influences – September 4th, 2007

Market Jitters

As expected, it has been grueling, trying to get past that stubborn 200-day moving average.  The stock market started to rebound, which hurt interest rates earlier last week.  Also hurting rates was the fact that the Federal Reserve Board’s Minutes, from their last meeting, didn’t give us any hints as to what they will do on their September 18^th meeting.  Most expect the Fed to lower the overnight rate from 5.25%, however, the market’s a little jittery right now, as you can imagine. 

Jobless Claims Increasing?

This week’s Initial Jobless Claims numbers were reported at 334,000.  It wasn’t too long ago that the expected weekly number was coming in at approximately 300,000.  The week before we hit 325,000.  We’re watching this closely because recently, waged-based inflation was a real concern with the Federal Reserve.  If the unemployment numbers start to grow, there isn’t as much pressure to pay people more for the same services, easing these inflationary concerns.  Remember, inflation is interest rate’s nemesis! 

Fed’s Favorite Inflation Gauge Keeping Things Cool

The Gross Domestic Product numbers were revised to 4.0% for the second quarter.  Lower than the expected 4.1%, however not a recessionary figure.  We’re still experiencing positive economic growth.  The long awaited Core Personal Consumption Expenditure Index came in less than expectations at 0.1%.  Keep in mind that this is the Federal Reserve’s favorite gauge on where inflation is.  The PCE tame reading on inflation should have helped bonds, however, interestingly, the stock market read this as support that the September 18^th meeting would surely have a cut, and the move to the stock market actually hurt bonds…what a catch 22, hey? 

FHA Refi’s To The Rescue?

Now, what’s all over the news is President Bush’s speech on tackling the mortgage credit crisis that we have been alluding to in past articles.  While some of the proposals may be beneficial or helpful to many homeowners, any proposed government bailout for struggling homeowners will have to go through Congress and could be a significant burden on the US taxpayer.  Basically, one of the elements in Bush’s plan would allow homeowner’s with good past credit history, and were recently struggling with their mortgage payments, to refinance with a Federally Insured FHA loan to 97% of the home’s value.  Now, keep in mind that FHA loan limits, currently in Butte County are only $304,000.  So, as disused in last week’s article, an increase in that loan amount could potentially help thousands more in our area.  They are asking for easier qualification guidelines for the loans as well.  This will be an interesting story to follow in the weeks ahead. 

What Will Next Friday Show?

Friday is going to be a big day.  The Jobs Report information will be released and this report could move rates vigorously.  Remember how I have been talking about the 200-day moving average (or trend line) being a very tough level of resistance to break through?  Well, we have not been able to get mortgage bonds to move past this level.  Also, the 100 day moving average has been a level of support.  So try and follow this…the 200-day moving average has been moving downwardly and the 100-day moving average has been moving upwardly.  When bond values move up, rates move down, and vice-versa.  So, with the 100-day moving up toward the 200-day trend line…where will interest rates go?  Will the level of support move bonds up past the 200-day, or will the level of resistance bring bond values down below the 100-day moving average causing rates to increase?   We’ll see in next week’s article.  Until then…

Chico, CA Interest Rates Market Report – Economic Influences – July 31st, 2007

Inflation Slowing Its Pace

We should thank Good ‘Ole Ben for watching his comments appropriately and helping interest rates by stating, “Core inflation should edge a bit lower, on net, over the remainder of this year and next year.  If energy prices level off as currently anticipated, overall inflation should slow to a pace close to that of core inflation in coming quarters.” 

Rates are bouncing between the 25-Day and 40 & 50-Day Moving Averages

Bonds have been basically taking a ride on the 25-day moving average and fortunately just hanging out just above this trend line.  Remember, when Bond prices go up (their yields move down), home loan rates improve, and when Bond prices go down (their yields move up), home loan rates worsen.  A good mortgage b roker will follow these movements and know when a good time to lock in an interest rate is.  Also, there are “trends” that bonds (mortgage backed securities) follow.  For example, as mention above, the 25-day moving average, however, there are also 40-Day, 50-Day, 100, 200, etc.  This past week we have been bouncing in-between the 25-Day and the 40 and 50-Day moving averages.  So, the current “trend” is just above the 25-Day moving average…so since we’re above that, it acts as a level of support for interest rates.  If we can get enough economic information to catapult us above the 40 and 50-day moving averages, then we could see lower rates.  If you don’t understand what I just wrote, go back and read it again.  It’s an excellent explanation as to how this stuff works, I don’t mind saying so, myself! 

Median Priced Home Moving Up

Existing Home Sales for June were at 5.75 Million Units.  Less than the 5.90 Million expected.  However (and this is a big however), the median home sales price increased 0.3% to $230,100.  This is the first year over year price increase in 11 months.  Also, the monthly sales inventory dropped from 8.9 months to 8.8 months.  Further evidence that the housing market is stabilizing and not as bad as the media is portraying. 

Obviously, the stock market has been of some interest lately.  Generally, stocks and bonds move in opposite directions, as if stocks are moving down, then people pull money out of stocks and move them into bonds.  With stocks at some all-time highs, as of late, and with oil giant Exxon reporting weak earnings, you can just imagine how volatile the stock and bond markets have been recently.  To add to the turmoil, the Gross Domestic Product numbers are showing hotter than expected at 3.4% (causing rates to increase), but Tuesday’s release of the Fed’s favorite gauge on inflation, the Core Personal Consumption Expenditure (PCE) Price Index was reported at a cool 0.1% for June.  This also shows the year-over-year Core PCE at 1.9%.  Remember from last articles that the Fed wants to see inflation between 1-2%.  Consumer Confidence is way up, so people are still ready to spend their money. 

It looks as though the real estate market is stabilizing, and we should be set for a nice bond and interest rate rebound.  So, get ready…but keep in mind…how quickly markets change…