Archive for the 'Economy' Category
Sacramento Mortgage Rates: The Start of a Recovery?
I just received some statistics on the Sacramento County market that confirm what we in the Sacramento valley have been feeling: buyers have emerged like a dragonfly hatch and are swarming around a veritable feast of low-priced, bank-owned properties. Has Sacramento taken the worst of its lumps?
For April, new escrows rose 33%, and closed escrows skyrocketed by 35% from the previous month and 68% from the same time last year. But the number of new listings fell 30%, reducing the inventory level to 5.9 months from 8.3. To further underscore the market’s keen interest in foreclosures, 90% of April’s sales were under $400k, 85% under $350k. Activity is certainly on the rise. But how deep is the pool of buyers?
Is the Financial Crisis Over?
Lately, Wall Street murmurs suggest that the worst may be over for the financial crisis. This theory has found support in the March and April retail sales numbers. Sales, ex-auto, grew by 0.5% in April, faster that analysts’ expected, on the heels of a 0.4% gain in March. This week’s CPI figures will give further clues as to impending threat of inflation and whether the Fed will soon have to begin reversing the direction of interest rates.
However, there is a big question about whether the financial dislocation will disrupt employment, further reducing consumer spending at the same time that “import inflation” is redirecting consumer dollars from luxuries to necessities. Mohamed El-Erian from Pimco makes this point is his excellent article Why This Crisis Is Still Far From Finished.
As far as mortgage rates are concerned, don’t bet on lower rates any time soon. The “Treasury bubble” will certainly burst if investors begin to feel like the storm has passed. But if the economy gets worse, mortgage rates will remain high to keep MBS investors in the game. Keep your seatbelt fastened; it’s going to be a bumpy ride.
read comments (1)PIMCO’S BILL GROSS: I LOVE THIS GUY
I hope you occasionally read Bill Gross’s Investment Outlook. On the occasion of his birthday, he writes When I’m Sixty-Four.
Unlike all the excessively formal sounding pundits who wax unintelligibly about the financial markets (yes, I’m reading the Age of Turbulance right now), Mr. Gross is always delightfully down to earth and understandable, despite dishing up a heaping plateful of insight and common sense.
Do check it out if you’re looking for clarity about the current banking crisis. I think you’ll enjoy it.
Other than a brief rise in February’s existing home sales that sparked Monday’s stock rally the rest of the economic news has been bad. New home sales fell in February, and remember that new homes are considered “sold” at Contract, not at close. Cancellations are never acknowledged in the numbers; they are simply left to sort themselves out in the long run. This leads to a short-term overstatement of sales and and understatement of inventory. As Credit Union National Association’s Mike Schenk so aptly put it, “We have two problems: supply and demand.”
Sliding consumer confidence, no decline in the inventory levels of homes, and today’s drop in durable goods all point the same direction. Monday’s stock market rally has turned sour, and money is flowing into bonds. Treasuries are up this morning, and the Fannie Mae MBS 5.5% coupon is up 8/32nd’s, indicating a possible slight improvement in mortgage rates today. We’ll see how stingy and cautious the banks are about passing that along to the consumer.
Sacramento Mortgage Rates: Another Wild Week
So mortgage rates fell a bit this week. Freddie Mac says the average 30 yr fixed was around 5.875% with 1/2 point and the 5/1 ARM around 5.5% with 1 point. The new conforming jumbo rates–between $417k and $580k in the Sacramento MSA–were about 1% higher, and regular jumbo rates about 1% higher than that. Jumbo rates have gotten even uglier in the recent crisis of confidence surrounded the Bear Stearns collapse and the stampede for the exits of MBS investors.
What’s Next for Mortgage Rates?
Well, we’ll get a look at the inflation factor this next week. Expect the bond market to be hypersensitive to any signs that the recent Fed easing is igniting inflation again. Bernanke is clearly in a pickle now, having had to bail out the investment banks to prevent a bank run that would have rivaled the 1930’s. If inflation fears catch fire, the Fed will have a tough choice to make. This may be bottom for mortgage rates, and by summer the Fed may have to begin the painful process of tightening. It sucks being Ben right now.
Buying Activity Picks Up
It might be premature to call it a trend just yet, but I’ve seen an increasing level of purchase activity the past two weeks across all price ranges. Investors and home owners alike seem to feel like the bottom is near and don’t want to wait for the competition to drive up prices. If I’m right and rates are as low as they’re going to get, this is the time.
Anyway, I hope you have a Happy Easter!
Technorati Tags: Sacramento Mortgage, real estate, conforming loan limits
The Labor Department released October’s Consumer Price Index (CPI) today on the heels of yesterday’s PPI. The overall index was up 0.3%; the core rate was up 0.2%, matching consensus estimates. This left the market to digest other news as it searched for direction.
That news came in the form of more credit market troubles that sent money into the safety of bonds this morning as Applied Material and J.C. Penny put out weak forecasts and Barclays announced a $2.7 billion write-down from its subprime lending activities and related credit issues.
The flight to quality is pushing mortgage rates a bit lower.
For those curious about the direction of mortgage interest rates, the August jobs report released this morning was a highly anticipated economic signpost.
Several noteworthy figures emerged. First, the loss of 4,000 jobs in August (vs. the expected rise of 114,000) was a huge surprise and the first such decline since August of 2003. Underscoring that point, the two prior month’s numbers were revised downward, to 69,000 from 125,000 in June and to 68,000 from 92,000 in July.
That shows a dramatic slowing of jobs during the second quarter job of this year, the period during which the sub prime mortgage problem burst out of its box and took the global center stage.
Expectations are increasing for a Fed rate cut later this month and for a possible series of cuts as the economy slows. If corporate earning continue to disappoint, look for the Fed to begin taking steps to forestall a recession.
Mortgage rates for conforming 30 and 15 year fixed rate loans should ease in anticipation of the expected Fed cut on the 18th.
The Fed Holds Rates Steady, Disappoints Markets
The Fed adjorned today leaving rates unchanged. Citing a desire to see more convincing signs of a “sustained moderation” in inflation, they kept up their hypervigilant stance against inflation. The decision disappointed the markets laboring under the recent spillover of the mortgage problems into the credit markets.
Here’s the text of the Press Release:
For immediate release
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Economic growth was moderate during the first half of the year. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.
Although the downside risks to growth have increased somewhat, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Michael H. Moskow; William Poole; Eric Rosengren; and Kevin M. Warsh.