March 5 Economic Update
March 5th, 2008Steve Peterson, Branch Manager
Chase Home Finance
Office: (800) 894-5440 Ext. 214
Cell: (775) 219-7151
Economic indicators, including interest rate levels, seem determined to change radically every few days. This means that one day we’ll hear analysts say that the dollar is going to fall even further and interest rates will rise much higher, then another day we’ll hear that interest rates are settling lower again and the dollar is edging up.
This makes business planning and economic forecasting nearly impossible. Still, I tend to hold to the idea that the real estate market is nearing its first clear evidences of recovery–not a speedy, heady recovery but a gradual return to life. Even the momentary Chicken-Little concerns that we are surely headed into a deadly downdraft seem to me varied version of the darkest hour before the dawn.
That’s my story, and I’m stickin’ to it–though my conviction rests, still, on rather thin ice.
Thumbnail Sketch: Though the indicators of late have been gnashing their teeth, mumbling about bad days ahead, it seems that the fear has settled back a little—and we can buy an ounce of gold for less than $1,000, a barrel of oil for less than $100. Even mortgage rates look strikingly better, having come off recent highs in a big way. The 6-month Treasury bill’s 40-basis-point plunge (nearly half a percent) is particularly persuasive, as is the average 30-year mortgage’s 24-basis-point drop (nearly a quarter percent). Rates are, for the moment at least, improving.
But these wild gyrations are either the sign of an extra-volatile marketplace that, full of fear and uncertainty, can’t make up its mind where rates will go next…or the beginning of an easing trend for interest rates. Or both—a sign of continuing volatility in a market defined by an underlying trend toward lower rates.
In short, we don’t have a clue.
What we do know, though, is that the market isn’t on the verge of falling off a cliff, as it appeared to be only a few days ago with commodity prices and interest rates rising rapidly. From a sober view, the fundamentals really aren’t there for a lengthy plunge. We are still a safe distance away from overly high unemployment, low productivity, low factory capacity utilization, and—notably—low retail sales.
Looking at the interest rates cited to the left should inspire us. Yes, that’s a 6-month Treasury bill yielding less than 2%, suggesting that longer-term rates will also decline significantly as well. Already, the news may be improving…though it has a dangerous edge to it.
The issue to keep our eyes on just now is the rate of inflation which, like an actor waiting in the wings to make a big appearance on stage, seems about to frighten the world’s central banks into raising interest rates—just as the Fed is probably about to lower the Fed Funds rate (on March 11-12) by 25 or, perhaps more likely, 50 basis points.
Do the math. Lower American interest rates and higher foreign rates (for the foreign investors we depend on to buy our Treasuries) very likely add up to a still-lower dollar, higher commodity prices, and a potentially weaker American economy. That character waiting in the wings, both happy and worried at the same moment, may be named Catch-22.
KEY INDICATORS
Gold $964.40/ounce [up]Crude Oil (Brent) $97.40/brl [down]U.S. Dollar to… Euro .6574 [down] Japanese Yen 102.87 [down]6-mo Treasury Bill Yield 1.69%10-yr Treasury Note Yield 3.52%[6-mo down 49 bps, 10-yr down 36 bps]11th Dist Cost of Funds: 3.970%30-yr Fixed-rate Mortgage 6.47%15-yr Fixed-rate Mortgage 5.78%1-yr ARM 5.29%[HSH averages rates: 30-yr down 24 bps, 15-yr down 39 bps; 1-yr ARM down 10 bps]
Mortgage Bankers Association Mortgage Applications Index week ending 2/22 Overall 655.1 (down 19.2%; down 22.6% the week prior) Purchase Money Loans 358.2 (up 0.2%; down 11.5% the week prior) Refinancing Loans 2458.9 (down 30.4%; down 27.9% the week prior)
Weekly Jobless Claims 2/23 373,000 first computation – 354,000 prior week (with upward revision of 5,000)
New Home Sales Jan Down 2.8% - nearly 10 months’ worth of homes on market – median selling price down 15% below last year
Construction Spending Jan Down 1.7%
