News for Prescott AZ - AmericanTowns.com

Monday, March 23, 2009

MMG Weekly: Fed Announcement Opens Window of Opportunity

 

Last Week in Review

 

 

"IF A WINDOW OF OPPORTUNITY APPEARS, DON'T PULL DOWN THE SHADE." Tom Peters. And last week, the Fed saw their regularly scheduled meeting as a window of opportunity to make a blockbuster announcement.

On Wednesday, the Fed announced that over the course of 2009, they will purchase an additional $750 Billion of Mortgage Backed Securities, as well as $300 Billion in long-term Treasuries, primarily to help shore up the housing market and keep home loan rates low. On the announcement, Bonds exploded higher, leaving Bond prices within whiskers of the best levels ever.

However, it's important to understand that while their actions may keep a lid on rates moving higher, they may not cause them to move dramatically lower... more on this in the Mortgage Market View article below. Additionally, due to many understaffed lenders and investors currently working at maximum capacity, we could once again see that improvements in Bond pricing may not all be passed through to our rate sheets.

Another factor that could impact whether Bonds and rates see significant improvement ahead are concerns of future inflation - the arch enemy of Bonds and home loan rates - brought on by all the recent aggressive moves by the Fed. While we know there is little inflation at the present time, the chatter of future inflation could have a negative impact on Bonds and home loan rates, or at least stifle any improvements.

Although the media is already spinning it differently, this is not a time to stay on the fence, hoping and waiting for lower rates. Home loan rates remain within inches of all-time historic lows, but may not necessarily move significantly lower based on this purchasing plan - waiting is a very risky move.

More good news last week, as Housing Starts for February came in better than expected and actually increased for the first time in eight months. In addition, Fed Chairman Bernanke stated the recession should end in 2009 and that he is confident of the long-term outlook for the US economy.

Also, an update on Mark-to-Market - the accounting rule which has had a devastating impact on the financial markets - which we have discussed many times, including in last week's issue. The Financial Accounting Standards Board (FASB) agreed that it will propose to allow companies to use more "leeway" in applying the accounting rules they use to value their assets, and planned a final vote for April 2nd. If this rule change is approved, it could result in better first-quarter financial statements for companies that have been affected by this rule. Stocks have been moving higher lately in the hopes that Mark-to-Market will be fixed, and a resolution could help Stocks further improve.

WANT TO KNOW MORE ABOUT WHAT THE FED'S ACTIONS REALLY MEAN FOR HOME LOAN RATES, AND WHAT OPPORTUNITIES MAY BE AVAILABLE FOR YOU? CHECK OUT THE MARKET VIEW BELOW FOR THE DETAILS.

 

Forecast for the Week Error! Filename not specified.

 

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This week will be busy from start to finish, beginning with an opportunity to get a read on the housing market via Monday's Existing Home Sales Report and the New Home Sales Report following on Wednesday. With rates near historic lows and the tax credits available for first-time home buyers - and lots of buyers potentially ready to come off the sidelines - home purchases are likely to be picking up in the coming months.

Also on Wednesday, we will get an update on consumer and business consumption and buying behavior via the Durable Goods Report which shows data on items that are non-disposable, such as cars, furniture, appliances, games, cameras, business equipment, etc. And stay tuned for Thursday's Gross Domestic Product (GDP) Report, which is the broadest measure of economic activity, and Friday's Core Personal Consumption Expenditure (PCE) index, found within the Personal Income report. PCE is the Fed's favorite gauge of inflation, and given all the recent talk of potential inflation ahead, it will be interesting to see what this report shows.

Remember: Weak economic news normally helps Bonds and home loan rates improve, as money flows out of the Stock market and into the Bond market. As you can see in the chart below, Bonds were buoyed last week by the Fed's announcement regarding its Bond purchase program - but again, the improvements are not necessarily all making their way through to the rate sheets. As always, I will be watching closely to see what impact the inflation chatter and the news of the week has on Bonds and rates.

Chart: Fannie Mae 4.5% Mortgage Bond (Friday Mar 20, 2009)

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The Mortgage Market View... Error! Filename not specified.

 

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What the Fed's Latest News Means for You

As discussed above, the Fed announced last week that they are going to buy another $750 Billion in Mortgage Backed Securities, bringing their total commitment to $1.25 Trillion. But how does this really impact home loan rates?

The Fed's actions provide a demand for Mortgage Backed Securities, which should help keep the ceiling on home loan rates from moving much higher in the foreseeable future. That's good news for homebuyers who are seeing the bargains out there and understanding that now is the time to act.and also good news for those who can benefit from a refinance.

But.and this is very important.the Fed's actions do not necessarily mean home loan rates will move significantly lower.

It all depends on which Bond coupons the Fed purchases. If they purchase higher rate coupons - as they have been so far this year - their continued purchasing actions will likely keep a lid on rates, but not necessarily push them significantly lower. Rates are within inches of historic lows - so don't wait to miss a great opportunity to purchase the home of your dreams, or get more money back in your budget by a smart refinance.

There's never any pressure, so why not take five minutes to give me a call? We can discuss what makes sense for you right now - which might be just staying put in your current home loan. With a short conversation we can talk over the options, and you can then rest assured that given all the recent changes, you are making smart decisions on your home financing.

 

The Week's Economic Indicator Calendar Error! Filename not specified.

 

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Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of March 23 - March 27

Date

ET

Economic Report

For

Estimate

Actual

Prior

Impact

Mon. March 23

10:00

Existing Home Sales

Feb

4.45M

 

4.49M

Moderate

Wed. March 25

08:30

Durable Goods Orders

Feb

-2.0%

 

-5.2%

Moderate

Wed. March 25

10:00

New Home Sales

Feb

300K

 

309K

Moderate

Wed. March 25

08:30

Jobless Claims (Initial)

3/21

650K

 

646K

Moderate

Thu. March 26

08:30

Chain Deflator

Q4

0.5%

 

0.5%

HIGH

Thu. March 26

08:30

Gross Domestic Product (GDP)

Q4

-6.6%

 

-6.2%

Moderate

Thu. March 26

10:30

Crude Inventories

3/20

NA

 

1942K

Moderate

Fri. March 27

08:30

Personal Spending

Feb

0.3%

 

0.6%

Moderate

Fri. March 27

08:30

Personal Consumption Expenditures and Core PCE

Feb

NA

 

0.1%

HIGH

Fri. March 27

08:30

Personal Consumption Expenditures and Core PCE

YOY

NA

 

1.6%

HIGH

Fri. March 27

10:00

Consumer Sentiment Index (UoM)

Mar

56.0

 

56.0

Moderate

Fri. March 27

08:30

Personal Income

Feb

-0.1%

 

0.4%

Moderate

 

 

 

Meghan Knoy
115 E Goodwin Street Suite C
Prescott, AZ 86303

          

 

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