Hello Everyone,
Rates drifted lower early in the week, only to drift slightly higher today. The move was based on economic news (which I'll get to in a moment) along with some so called "flight to quality" buying in bonds as financial stocks took big hits to their prices this week. The net result is that rates are unchanged to slightly lower on today's rate sheet. Before we get to the news, here's this week's 10 day price chart for mortgage backed securities which clearly shows the rise and fall this week.
As for the news; this week's data included new and existing home sales reports as a follow up to last week's housing starts data (remember "horrible-er"?). The data kicked off Wednesday with the existing home sales showing a drop of 8% in September to their lowest level since 1999. Analysts had expected to see a fall of just 5.5%. On Thursday, durable goods orders fell 1.7%. They had been expected to RISE by 1.5%. On top of that the August orders were revised to a drop of 5.3% from the 4.9% drop reported last month. Also on Thursday the weekly jobless claims fell less than expected showing continued weakness in the labor market. All these data points continue to show a weakening economy which as we know is good for the prospects of lower interest rates.
There was an upside surprise report for the week and it was a 4.8% RISE in new home sales in September. It had been expected that sales of new homes would fall 3.1%. On the surface this is good news for the economy (and our business) but bad for lower rates. The market didn't take the news that way and here's why. The rise in sales doesn't signal an end to the housing slump as it was fueled by drastic price cuts and incentives from builders doing anything it takes to clear inventory. There was also a major downward revision to the August new home sales data which completely offset this month's increase. Let's not forget that there is a 10% + or - margin of error in this report too! Another key note is that this report is only for contracts signed, not deals closed and fallout has been running at a 45% plus rate this year. Don't get me wrong, I'm not trying to rain on the parade. This is good news, just not as good as might seem. What we do see in this data and last week's starts data is that inventories are falling. While this may not be the bottom, it looks like we might be near it.
So what does all this data and news mean to us? For one it has fueled the speculation of a rate cut by the Fed at their next meeting. In fact, a 100% probability of a .25% cut by the Fed is priced into current rates. There's also as much as a .25% probability that the Fed will cut .50% at it's meeting next week. It's this speculation that has rates down where we are right now. Things are playing out just like they did in September when bad economic news drove rates down and led to the ‘shock and awe' .50% cut by the Fed in both the discount and fed funds rates. Let's not get too excited about rates falling further if and/or when the Fed cuts are announced. Just like in September, I think is it likely that long term fixed rates will jump up when the next cut happens. Short term loans such as ARMs and HELOCs will see their rates fall since they are tied to Prime or LIBOR.
The question of course remains, will this be the last of the cuts and the bottom in mortgage rates or will the economy decline further prompting more rate cuts in order to get the economy growing again. Only time will tell; and we'll be here to watch and report. Have a successful weekend and please call on me if I can be of service.
Starting this week you can view my weekly updates on the web courtesy of my blog on Active Rain. Active Rain is a ‘social networking' type of website for real estate professionals. Check my blog out at www.activerain.com/baileybr. Click on the ‘my blog' link on the left to view this report. My profile is still under construction there and much more data and information will be posted soon. You can also direct friends and clients here to view the information or if you have trouble getting the data by e-mail or fax. Let me know what you think!
Blaine R. Bailey
Sr. Mortgage Consultant
Prestige Mortgage
404-402-7184
baileybr@bellsouth.net
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