Last week - Bernanke and the Fed have helped to stabilize the financial markets, and calmed some of the "credit crunch blues". Just over a week ago, the Fed made a decision to lower the rate at their "Discount Window", allowing banking institutions another method of providing assurance of liquidity to their clients, and also helping many institutions continue to fund home loans. Because of the Fed's action, the past week was somewhat calm in the financial world...at least calmer than has been seen in awhile. Both the Stock market and the Bond markets moved higher, and conforming home loan rates remained stable to VERY slightly improved.
Now some good news arrived on the housing front via the New Home Sales report, showing a 2.8% increase in sales for July, and an upward revision to June's numbers as well. Now unsold new home inventory continued to decline for the fourth consecutive month, falling by 1.0% to 533,000 homes. This inventory represents a 7.5 month supply, down from the 7.7 month supply in June. The median new home sales price went up to over $239K.
This week - it appears that Bonds will have double challenge of "fundamentals" and "technical's" to overcome if home loan rates are to see much improvement in the coming week.
"Fundamentals" are the news items and reports which can influence Bonds and home loan rates. In general, hot or positive economic news tends to help Stock prices get better, but causes Bonds and home loan rates to worsen - and vice versa. This week, there will be a slew of potentially high impact reports in store, ending with a very important read on inflation by way of the Core Personal Consumption Expenditure Price Index (PCE).
Don't forget we also have the "technical" factors to contend with too. One part of technical analysis means looking at where Bonds are trading now, versus where they have in the past, and thinking about what patterns are likely to repeat themselves. Remember that when Bond prices move higher, home loan rates move lower.
Today we are at the 200-day Moving average. Historically speaking, the 200-day moving average has proven to be a very tough ceiling to break, when Bonds are beneath it and attempting to move higher. In my opinion, it has also been a strong floor of support, when Bonds are trading above this level, helping to prevent home loan rates from worsening. Today Bonds are below this level, a break out higher would mean that home loan rates would improve - but it has been a tough level to beat in the past, and this ceiling may slow down or cap any improvements or advances that come via economic news.