Danny Salas

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

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

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Chico, CA Interest Rates Market Report – Economic Influences – February 18, 2010

Fiscal Policy Is On An Unsustainable Course

Inflation, Inflation, Inflation

Uh-Oh…Yesterday afternoon, we switched to a lock mode, after advising people to carefully float into the morning.  And lock, we did!  It’s a good thing, too, because the negative movement, for interest rates, continues to be alarming with reads on inflation poking its ugly head out and stirring the markets.  Remember, inflation is the nemesis of interest rates.

Read This Carefully

Yesterday, Kansas City Fed President Thomas Hoenig had some very interesting comments that the United States, quite frankly, better pay close attention to.  He said, “Fiscal policy is on an unsustainable course.  The US Government must make adjustments in its spending and tax programs.  It is that simple.  If pre-emptive corrective action is not taken, regarding the fiscal outlook, then the United States risks precipitating its own next crisis.”  He’s warning about hyperinflation.  That occurs when rates have to increase so quickly, as to stave off inflation, that currency become valueless.  Remember Post World War I Germany?  Well, I don’t.  But I’ve read about it!  So, when Hoenig became President of the Kansas City Fed, in 1991, he mentioned that his 85 year old neighbor gave him a 500,000 German mark note.  He told Tom that that note would have purchased a home, in 1921.  In 1923, that same note wouldn’t even buy a loaf of bread.  Mr. Hoenig took that to heart, and that’s one of the reasons he’s been so outspoken regarding these turbulent times.  He has that mark note framed in his office, as a cold reminder to himself, of what his responsibilities are, to the American People!

Housing Starts Up

591,000 starts compared to the 580,000 expected.  Great news for the housing market, however, bad news for rates.  Kind-of-a “Catch-22,” no?  This is primarily due to the Tax Credit.

Jobless Claims

Jobless Claims, for the week, were up to 473,000, compared to the 438,000 expected.  Here’s a scary figure:  An additional 5.8 million people are filing for Emergency Unemployment Compensation (EUC).  That’s up an astonishing 304,708 people, just from the prior week. Keep in mind that these figures are not included in the general unemployment data.  So, if we’re waiting for the jobs numbers to look better, we might be waiting a long time!

Producer Price Index

The PPI came in 1.4% hotter, in January, than in December.  This is a measurement of inflation at the wholesale level.  It’s hot, however, this is not always passed to the consumer, at the consumer level.  These readings will be reported tomorrow, with the Consumer Price Index (CPI).

As I Write:  Locking Advice

As soon as we touched beneath the 200-Day, things took off and plummeted down about 50 basis points.  That’s about 1/2 Point cost on a loan.  Now that we’ve broken beneath all levels of support, it would be prudent to lock.

Related Must Reads

An Interesting Contradiction: Jobs Growth?

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Chico, CA Interest Rates Market Report – Economic Influences – December 15, 2009

Inflation Readings High On PPI

Inflation Rearing Its Ugly Head

The Producer Price Index (PPI) was significantly higher than expected, at 1.8%, when experts expected a 0.8% reading.  Energy prices was the main reason, however, even after taking out the energy prices, the Core PPI stood at 0.5%.  That’s the highest reading since October of 2008.  This was enough to scare the markets into Bond Values plummeting, and therefore their yields and interest rates increasing about .375% Point compared to pricing, yesterday.  We were able to bounce back, a little bit, so we’ll have to see how the market absorbs this latest reading on inflation.  There’s no real inflation concern, with the exception of this report, so hang in there…let’s see the Consumer Price Index (CPI) reading before we jump to any conclusions…

Open Market Committee Meeting

The Fed starts its two day meeting today.  It will be interesting to see how they read today’s inflation numbers, coupled with tomorrow’s release of the Consumer Price Index.  Tomorrow at 2:15 Eastern, 11:15 a.m., our time, the Fed will speak about what their meeting entailed.  Keep in mind that investors will be listening to every word, trying to determine what their feeling is on the future of the economy.  Rates can move on speculation regarding what the market feel the fed will say, so hold your hat down!

Manufacturing Down – Production & Utilization Up

Something that’s not mentioned too often in my column is the New York Empire State Index.  It’s a reading on manufacturing, and it was the lowest monthly decline ever!  However, Industrial Production and Capacity Utilization were up!  So, given the fact that we’re manufacturing less, production and utilizing employee output is up, therefore, there is room for companies before they start hiring new people.

Locking Advice

At this point, we may as well hope that Bonds can remain above the 100 & 200-Day Moving Averages.  If we fall too far below, things could get ugly, however, let’s hope that inflation, on the consumer level, is not too much of a concern, tomorrow.  I told you it would be a bumpy ride…

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Chico, CA Interest Rates Market Report – Economic Influences – November 18, 2009

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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