April 9 Economic Update
April 9th, 2008Steve Peterson, Branch Manager
Chase Home Finance
Office: (800) 894-5440 Ext. 214
Cell: (775) 219-7151
Thumbnail Sketch: There is a curious contrast between the fervor with which many in Washington are seeking programs that will ease the real estate madness and the lackadaisical way others are brushing aside any sense of urgency.
Why the contrast? Those on one side of the issue are motivated by specific interests: they want relief for homeowners, for builders, for the real estate market. Those on the other side seem motivated by the belief that any intervention by the government should be a last resort measure—and we should give the earlier legislation and rate cuts time to take effect before doing anything more.
This is a political drama now, where it was more of a bipartisan rush to respond earlier in the year when the Economic Stimulus Act was passed so quickly. At this point, the contents of further legislation are difficult to predict.
The building industry is working diligently to get major tax relief from legislation allowing builders to take a four-year carry-back on recent losses (that is, to bring the losses to bear on profits earned as much as four years ago, rather than just two). Such a change would bring many builders something of a windfall and would likely mean the difference between survival and bankruptcy for many small builders.
Another idea with a good deal of backing is to provide tax credits to those who buy a home where a foreclosure process has begun.
Another is to raise the FHA loan level for refis to $550,000—and not temporarily, it seems—allowing the FHA program to offer the opportunity for people to refinance their way out of trouble brewing with their existing subprime loan.
Meanwhile, there is a problem that Washington can’t do much about. Lenders have kept rates higher—whether on adjustable rate mortgages or on 30-year fixed-rates—due in part to a disinclination to loan unless the borrower is extraordinarily qualified.
The 30-year fixed-rate loan usually follows the ups and downs of the 10-year Treasury note, but it has been moving independently for many weeks. The same is true of ARMs tied to shorter-term Treasury bills and notes. Treasury rates have declined far more than have the actual ARM offered rates.
We have not heard from major lenders why this is so. We seem to sit in the midst of a tornado, not quite knowing which way it will turn next. The good news? The recessionary tornado so far looks relatively mild.
KEY INDICATORS
Gold $918.00/ounce [down]Crude Oil (Brent) $106.76/brl [up]U.S. Dollar to… Euro .6360 [slightly up] Japanese Yen 102.42 [up]6-mo Treasury Bill Yield 1.56%10-yr Treasury Note Yield 3.55%[6-mo up 5 bps, 10-yr up 11 bps]11th Dist Cost of Funds: 3.560%30-yr Fixed-rate Mortgage 6.52%15-yr Fixed-rate Mortgage 5.99%1-yr ARM 6.24%[HSH averages rates: 30-yr up 11 bps, 15-yr up 19 bps; 1-yr ARM up 76 bps]
Mortgage Bankers Association Mortgage Applications Index week ending 3/28 Overall 688.3 (down 28.7%; up 48.1% the week prior) Purchase Money Loans 356.0 (down 11.8%; up 10.6% the week prior) Refinancing Loans 2636.0 (down 38.1%; up 82.2% the week prior)
Weekly Jobless Claims 3/29 407,000 first computation – 369,000 prior week (with upward revision of 3,000)
March Employment Report Payroll jobs down 80,000 – unemployment rate up to 5.1%
Consumer Credit Feb Up 2.4% - revolving up 6.1% - non-revolving up 0.4%
