Market News Update - A New Stimulus Launched

Well the news everyone has been waiting for happened…The Fed announced the launch of QE3.  This announcement on Thursday morning spawned a rally in the stock market driving it up over 200 points.  Investors have been sitting patiently on the sidelines waiting for this news as the Fed’s intervention was not unexpected.  The recent poor employment reports along with increasing jobless claims has the government very concerned about the job market not improving.

The goal of the Fed’s 3^rd round of stimulus is to keep interest rates artificially low.  However, this is a delicate balance, because when investors believe that the stock market is going to do well, they take their money out of government bonds and purchase stocks.  This ultimately will have the opposite result that the Fed wants to accomplish.  When investors sell bonds to buy stocks, bond yields rise which indirectly causes mortgage rates to rise.  If mortgage rates rise, then the cost to finance a house rises.  If the cost of financing a home rises then….(Well you get the idea)

Immediate reaction to the Fed’s announcement was for the stock market to rally and, exactly as I said, bonds got hammered and rates actually went up. 

I truly understand what the Fed is trying to accomplish.  They believe that keeping rates super low will get the housing market really going.  Here is the challenge however.  We have seen mortgage rates down to the low 3% range, yet this did little to spur housing demand.  The latest round of stimulus is not expected to even bring rates down as low as they were before.

To make matters worse, the two sides of government don’t even talk to each other anymore.  The expiration of tax cuts, as well as the automatic trigger of huge spending cuts scheduled for the end of the year, has many people concerned about what is called the “Fiscal Cliff”.  If this is allowed to occur and Congress does not do anything to stop it, it is widely believed that the economy will fall back into recession.  The Fed can only do so much; however, until our elected officials decide to go back to work, nothing will change.

First Time Jobless Claims took an unanticipated jump all the way up to 382,000.  The Labor Department blames the jump on the effects of Hurricane Isaac on many states.  It is in those impacted areas that the biggest jump in layoffs had occurred.

Inflation on the wholesale level continues to remain under control when you don’t factor in the volatile food and energy prices.  The Producer Price Index rose a modest .2% which is in line with expectations.  What is interesting to note is that on Thursday when the Fed announced the new round of economic stimulus, the price of oil shot up to just under $99.00 a barrel.  It is likely that $100 a barrel is just around the corner.

Next week’s economic reports are:

• Tuesday September 18^th – Housing Market Index
• Wednesday September 19^th  – MBA Applications, Housing Starts and Existing Home Sales
• Thursday September 20^th – First Time Jobless Claims

 

I appreciate your business and look forward to talking to you soon! Have a great day!!!
 

Sincerely,

Cindy Tomlinson
Loan Officer

USLending Company

DRE Lic # 01520422
NMLS # 214851   

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Market News Update - Home Buyers are Hitting the Streets!

How long has it been since housing was the featured bright spot in the economy?   I don’t know exactly, but it is certainly longer than I can remember.

So many areas of the economy are deteriorating with the exception of housing.  With mortgage rates once again dropping to record lows, buyers are taking notice and hitting the streets.  We are receiving reports of stabilizing home prices, as well as realtors across the country that are continuing to report increased buyer activity.  In some areas of the country, especially the south, we are even seeing bidding wars on properties.

The National Home Builders Association that releases the monthly Housing Market Index reported that builders have seen a significant increase in demand for new construction in the month of April.  Housing Starts also increased 2.6% in April after having been down by the same amount in March.

There is a lot of concern about Europe again, especially Greece, and that has been weighing heavily on the minds of investors.  If you look at a graph of the stock market for the month of May, it looks like a car rolling down hill without any breaks.  The DOW Jones Industrial Average has dropped 837 points since the 1^st of the month.  Investors are running from the markets and placing their money in the safe haven of government securities.  It is this panic that has the mortgage rates reaching all time lows.

Inflation continues to remain a non factor as consumers have maintained their frugal ways and refuse to pay higher prices.  Many industries have attempted to increase prices on a wholesale or retail level and, as soon as they do, they immediately see a drop in sales.  Consumers simply refuse to pay higher prices.  I am a consumer and I know that since the recession, I have completely changed my spending habits to be more conservative and I see no reason to change this regardless of how the economy improves.

Retail Sales improved, however, at a much slower pace than before.  In March, sales increased .7% whereas the month of April only realized a slight increase of .1%.  None the less, an increase is an increase.

First Time Jobless Claims remained virtually unchanged for another week.  Some believe this is a sign of employment stability however others seem to believe that there is cause for concern.  Typically at this time of year there is an increase in hiring and that has simply not materialized.  Claims remain constant at a slightly elevated level of 370,000.

With the economy slowing, combined with the concerns from the Greek financial crisis, the Federal Open Market Committee is beginning to warm up to the idea that they may have to launch a 3^rd round of economic stimulus, known as QE3.

 

By no means is the Fed even in the planning stage of providing more stimulus, they are simply at a point where more members are stating that if necessary they will consider it.  You may remember that just a few months ago, many of the members were staunchly against providing any more help to the economy.  It appears that the deterioration in the markets is beginning to move some of the members to realize that the economy may be in fact slowing down far more than first thought.

Reports for next week are:

• Tuesday May 22^nd – Existing Home Sales
• Wednesday May 23^rd - MBA Applications, New Home Sales and MBA Applications
• Thursday May 24^th - First Time Jobless Claims and Durable Goods Orders

I appreciate your business and look forward to talking to you soon! Have a great day!!!
 

Sincerely,

Cindy Tomlinson
Loan Officer

USLending Company

DRE Lic # 01520422
NMLS # 214851