Mortgage Rates Today…..

Well, we told you earlier that the retail sales report would probably push rates up.    Now that I’ve got today’s rates, here’s an overview of the changes from yesterday:

• 30 year Fixed under $417,000 – no change from yesterday.
• 15 year fixed under $417,000 – a minor increase.
• 30 year fixed over $417,000 – a minor increase
• 15 year fixed over $417,000 – a minor increase
• 30 year fixed FHA – a .125% increase in rates

So, rates didn’t jump as much as it appeared they would.    Why’s that?   The University of Michigan Consumer Sentiment Survey came in worse than expected.   The market had expected that it would come in the same as the last report but it dipped down.    Apparently consumers aren’t real confident that government policies will help the situation.

U.S. Consumer Sentiment declined in March.

U.S. consumer sentiment declined slightly in early March, with Americans less positive about the job outlook, a survey released Friday showed.

Shaun Curry | AFP | Getty Images

 

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The reading, however, stayed close to its six-month average, and was significantly above the year-ago level, according to Thomson Reuters/University of Michigan’s Surveys of Consumers.

The preliminary March reading for the surveys’ overall index on consumer sentiment was 72.5, down from 73.6 where it ended in February, and below the 73.6 forecast by analysts polled by Reuters.

In early March, consumers were expecting no change in the national rate of unemployment, which stands at 9.7 percent, for the rest of 2010, and were losing confidence in help from government economic policies.

"In recent months there has been a noticeable loss of confidence in current economic policies," Richard Curtin, director of the surveys, said in a statement.

So, the report was better than last year, which reinforces the “back from the brink of disaster” mentality.    But it’s hardly a glowing report.

That makes it more likely that the retail sales report for February was a “statistical anomaly” and not truly a sign of an improved market.    That took some pressure off rates for the morning.

Retail Sales Look Strong – puts pressure on mortgage rates?

Sales at U.S. retailers rose unexpectedly in February despite a drop in vehicle purchases and inclement weather that was expected to curtail shopping, according to a government report on Friday that bolstered hopes of a sustainable economic recovery.

The Commerce Department said total retail sales rose 0.3 percent as consumers bought an array of goods from necessities to luxury items. Sales for January were, however, revised down to only a gain of 0.1 percent from the previously reported 0.5 percent rise.

Analysts polled by Reuters had forecast retail sales slipping 0.2 percent last month. Compared to February last year, sales were 3.9 percent higher.

via Retail Sales Look Strong as Consumer Makes Comeback – CNBC.

This doesn’t bode well for mortgage rates…..

Why?   A couple of things:

• An increase in retail sales can mean an increase in the likelihood of inflation.
• An increase in retail sales can mean that the economy is turning around.
• Evidence that the economy is turning around can mean that the government is going to withdraw their subsidies of the financial markets sooner and that will send mortgage rates higher.

I’ll let you know what rates look like when I get them later this morning, but I expect them to be higher…….

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Kenny H.

The Risk of Inflation – and what it means to mortgage rates….

The New York Fed Governor who took Tim Geithner’s place made speech yesterday where he talked about inflation or the lack of it.   A couple of main points:

• We’ve got 1 to 2 years until inflation becomes an issue.
• The economic recovery is going to be much more mediocre than many hope for (and would like).
• That mediocrity in the pace of recovery, due to a reduction in consumer spending, the reduction of the fiscal stimulus, and the fact that the banking industry isn’t as healthy as it needs to be, will keep inflation lower and allow the government to keep the interest rates that they control lower for a while.

If you recall, I’ve said that I believe we’ve got 12 to 18 months until we see significant movements in inflation and correspondingly on interest rates.   A couple of thoughts:

• The fact that the Fed is cutting back on their purchase of Treasuries and mortgage backed securities over the next 6 months will apply some upward pressure.  I expect we’ll see rates .25 to .375% higher by next March than we have now.
• The issues that are going on in the currency markets have the potential of increasing rates sooner rather than later.
• The amount of debt that the government has borrowed and will some time have to repay is not going to make interest rates go down.

Summary of what the mortgage market looks like:

• Short term – a fluctuating market based on the economic news of the moment – last week the market looked bad and rates went down.   So far this week, the market looks good and rates have been trending up.
• Longer term – the overall trend will be higher rather than lower.

Stay tuned.

Tom Vanderwell

Calculated Risk: NY Fed’s Dudley: Downside Risks to Inflation for “next year or two”

… My assessment of where things stand today is mixed. On the positive side, the financial markets are performing better and the economy is now recovering. …

On the negative side, the unemployment rate is much too high and it seems likely that the recovery will be less robust than desired. This means that the economy has significant excess slack and implies that we face meaningful downside risks to inflation over the next year or two.

 …… I also suspect that the recovery will turn out to be moderate by historical standards.

First, households are unlikely to have fully adjusted to the net wealth shock that has been generated by the housing price decline and the weakness in share prices.

…The second force that could restrain the recovery is the fiscal outlook. The fiscal stimulus that is currently providing support to economic activity is temporary rather than permanent. This has to be the case if we are to ensure that fiscal policy is on a sustainable path over the long-run. This means that the positive impulse from fiscal stimulus will abate over the next year.

The third, and perhaps most important factor, is that the banking system has still not fully recovered. Bank credit losses lag the business cycle and are still climbing. …

Technorati Tags: Inflation, Mortgage Rates

Inflation? Deflation? Hyperinflation? All of the above? None of the above?

So, what are we in?   Are we in a period of inflation?  Deflation?  Hyper Inflation?    Let me explain my thoughts on those options….

In many areas, we are seeing deflation.   The value of houses and cars (for instance) have fallen and have done so quite substantially.

Many people are anticipating that we’re going to be moving into a period of inflation.   Why?

• Because that’s typically what happens when interest rates are moved to very low levels.
• Because inflation typically happens when the economy rebounds from a slowdown.

And then there’s hyper-inflation.   What’s the difference?   The main difference between hyper inflation and inflation has to do with the speed and the rise in levels.

What are some of the things that can cause hyper-inflation?

• The supply/demand inbalance in the amount of governmental debt (Treasuries and Mortgage Backed Securities) will shift from more buyers than sellers and therefore very low rates to more sellers than buyers and therefore substantially higher rates.
• The value of the dollar.   What impacts the value of the dollar?   That’s a topic for an entire doctoral dissertation but let’s just say that the dollar hasn’t been treated very kindly in the currency markets lately.

Below is an interesting interview that took place on CNBC talking about inflation, hyper inflation and the prospects.

Worth listening too…..

Tom Vanderwell

Technorati Tags: Hyper Inflation

Inflation? Higher Mortgage Rates?

A couple of videos from CNBC discussing the likelihood of higher inflation and when.

Just remember the relationship between inflation and higher interest rates.    The more we see inflation, the higher rates are going to get…..

Tom Vanderwell

Technorati Tags: Inflation, Mortgage Rates

What happens when they take the punch bowl away….

A good analysis of what we might be heading toward a deflation to inflation economy……

Inflation, Deflation

I wonder what mortgage rates would be with this kind of inflation?

Inflation Rates in History: League Tables

An eye-opening list of the highest monthly inflation rates recorded in modern economic history, from Germany to Zimbabwe. There are surprises in here for most people, including the league-leading performance of Hungary circa 1946 — prices doubled every 15 hours — and the mere fourth-place status of Weimar Germany. Pikers.

Source:

On the Measurement of Zimbabwe’s Hyperinflation, Steve H. Hanke and Alex K. F. Kwok, Cato Journal, Vol. 29, No. 2 (Spring/Summer 2009]

[via EH]

Inflation

Core vs. Food and Energy – and why it matters to the housing market….

Okay, we’ve got conflicting stories on the inflation front and that means conflicting forces on mortgage rates.   Let me explain:

• The headline number shows that producer prices dropped in July and dropped compared to a year ago.
• The core producer prices are actually up by 2.6% compared to last year.

Core prices mean without food and energy……

So which is it?   Are prices dropping and we’re in a deflationary environment or are prices going up and we’re in an inflationary environment?  

If you look at what we talked about in terms of the CPI numbers, I think it’s much more likely that we’re heading into an inflationary environment.

What difference does inflation make?   If we’re in an inflationary market, it pushes up on mortgage rates.   If we’re in a deflationary market, that pushes down on mortgage rates.

So, answer the question and you’ve got a good insight into where mortgage rates are going.

Tom Vanderwell

Producer prices fall 0.9% – record annual decline – Aug. 18, 2009

U.S. producer prices fell by a larger-than expected amount in July and notched a record decline compared with a year earlier as gasoline prices plummeted, government data Tuesday showed.

Core producer prices, which exclude food and energy costs, edged 0.1% lower in July compared with a forecast for a 0.1% rise, and after a 0.5% increase in June.

The core producer price index stood 2.6% higher measured on a year-on-year basis, versus a forecast for a 2.8% advance.

Mortgage Rates

Inflation – it’s different this time?

An interesting article about inflation and the fear of it.   A couple of thoughts:

• Be afraid of anyone who says, “It’s different this time.”  
• Hoisington says that it’s different because the weak economy will keep wage and price pressure down.   That’s true, but that doesn’t take into consideration the cost of borrowing, the value of the dollar and those factors which are going to play into the markets more than they have in years.

Do I think inflation is a threat right now?  Nope.  

Do I believe that inflation is that storm on the horizon that’s heading our way?  Yes I do.

Do I believe that the current “spike” in interest rates is at least in part because of the government’s massive and inflationary borrowing of unbelievable sums of money?   Yes I do.

“It’s different this time.”   Yeah, sure it is.

Tom Vanderwell

Investor Daily: Reassessing inflation fears – Jun. 18, 2009

During a recent speech, money manager Van Hoisington, president of Hoisington Investment Management, asked his audience of sophisticated investors to raise a hand if they thought inflation was going to be a problem sooner or later.

Everyone raised a hand — except Hoisington.

This “inflationist view of the world,” which he outlines in his firm’s recent quarterly review and outlook, stems from Milton Friedman’s observation that “inflation is always and everywhere a monetary phenomenon.” Hoisington goes on to say that “the Fed has expanded the money supply dramatically, and since inflation is too much money chasing too few goods,” people think inflation is inevitable. But he thinks they’re wrong.

Inflation

The Fed and Inflation…… Important for real estate planning…..

Reuters has an interesting story about a couple of speeches that were made today.   My comments, as usual, are in bold and italics, and then more at the end…

Tom

Fed Says Plan Now to Avert Inflation

TULSA, Oklahoma (Reuters) – The United States economy will skid more deeply into recession (the troubles aren’t over yet) in coming months, Federal Reserve policy-makers warned on Thursday, but it is time to start planning how to wind down spending to avert an inflationary surge. I agree wholeheartedly.   We’re in a very difficult mess and while the vast majority of government and bank policy decisions in the last 9 to 12 months have been made overnight and in a “bandaid” fashion, we need to plan and coordinate things so that we know what needs to be done.   “Inflationary surge” is no accident in terminology.   He knows that if we don’t watch out, we’re going to see a major spike in inflation and a major spike in interest rates.

The president of the Kansas City Federal Reserve Bank, Thomas Hoenig, said that hard as it was to predict when the winding-down process must be initiated, it will happen.

“We know it has to happen, but the timing I can’t tell you. Nobody knows. We will watch every indicator of data that suggests a recovery is on the way,” Hoenig said in response to audience questions after a speech in Tulsa, Oklahoma.

“Failure to do that at the right time means you risk a much higher inflation environment,” he added.  I think he’s right.  If we fail to “unwind” the government spending soon enough, we’ll end up with a much higher inflation environment.   And how do you combat a higher inflation environment?  Higher interest rates.

So what difference does that make?  When you are thinking about buying, refinancing, or even just paying down principal on your mortgage, you need to look at the next 3 to 5 years and say, “What difference would it make in my planning if interest rates went up to 9%?

Hoenig acknowledged the economy remains “under significant stress” from the ongoing banking crisis. But he said the U.S. central bank cannot wait until it is well into recovery and the job market is strong before acting.  We’re going to see interest rates start going up before we see solid signs that the economy is recovering and jobs are coming back.

The Fed’s second longest-serving policy-maker added that he expects resistance “almost immediately” to any move to raise interest rates or, for example, to start selling off its stash of mortgage-backed securities.  There’s a topic for another discussion.   What’s going to happen when the Fed starts selling the billions of mortgage backed securities that they have bought to keep the market moving?   The law of supply and demand says that when you flood the market with supply, supply will exceed demand.   Demand goes down in relation to supply and prices go down.

Hoenig and a second regional Fed bank president, Gary Stern of Minneapolis, said there were still significant credit strains holding the economy back and cautioned that an eventual rebound likely will be mild.

“The recession is likely to persist for some time longer, and the initial stage of the recovery seems likely to be subdued,” Stern said in remarks prepared for the South Dakota economic summit in Sioux Falls.

“In view of the state of the credit markets, it seems a fair bet that it will take time for momentum to build. But … as we get into the middle of 2010 and beyond, I would expect to see a resumption of healthy growth,” he added.  Many people are saying we’ve reached a bottom.   These guys are saying the middle of 2010.   My odds are with these guys.

A third speaker, White House Economic Adviser Lawrence Summers, told the Economic Club in Washington that there were “substantial downdrafts” hindering a U.S. recovery. “Economies don’t go from losing 600,000 jobs a month to a terribly happy path overnight,” he said.

But Summers added that overstocked inventories were being drawn down and “the sense of a ball falling off a table, which is what the economy has felt like since the middle of last fall, I think we can be reasonably confident that that’s going to end within the next few months.”   Watch what he said carefully.   Did he say that the economy was going to bottom out within the next few months and start recovering?   Nope.  He said that the “ball falling off the table” type of free fall that has been happening will end.   We’ll still be sliding down but not as rapidly.

Hoenig said getting the banks back into good health was vital for a sustained recovery.

“The restoration of normal financial activity depends on how we deal with the problems of our largest financial institutions,” he said, and policy-makers need to be mindful of public dissatisfaction with costly taxpayer-funded bailouts.

Even at larger institutions, “failure does have to be an option in an economic system such as ours,” he said, adding that as part of the resolution process, senior management at the failed firms should be replaced.

Two important points in that paragraph.   Too big to fail isn’t true.  We need to have the option of unwinding some of the big financial institutions if they are indeed insolvent.  However we need to have the foresight to plan and deal with it in an organized way rather than the chaos that was the Lehman bankruptcy.  Am I confident that the current administration has the right people on the job for it?  No, I’m not.

Summers said there was little choice now but to do everything possible to stimulate economic activity. But he said the Fed must be ready to act decisively in the medium term to restrain spending so that inflation is contained.  In other words, “Put the pedal to the metal until we get to 25 mph and then slam on the brakes!”

“The thing about an inflation is that … the moment it’s absolutely clear you have the problem is a moment when you may have been too late in addressing it,” Summers said. “So I think it’s a very difficult balance the policy is going to have to walk.”

Stern said the risk of a jump in either inflation or deflation could not be dismissed out of hand but doubted either would become a huge problem.

“If economic growth resumes in the United States as I expect, the threat of deflation should diminish commensurately,” he said, while expressing skepticism that a big increase in the Fed’s balance sheet was sowing the seeds of inflation.

“The relation between growth in the money supply and the path of prices holds in the long run, over periods of at least five and more likely 10 years. Thus, there is ample time to withdraw excess liquidity as appropriate,” he said.

(Additional reporting by Todd Epp and David Lawder; Editing by Dan Grebler)

Tom here with a couple of additional thoughts:

• As you are looking at your plans for real estate for the next 3 to 7 years, I believe it’s important to ask yourself, “How would my plans change if inflation became a problem and interest rates jump by 3 to 5%?
• When you are looking at what debts to pay off first, tackle the adjustable rate (equity lines) first and the fixed rate debts later.  
  
• If interest rates and inflation are going to jump quite substantially, what’s that going to do to real estate prices and how does that impact what your plans are?

Lots of questions and unfortunately, not as many answers as we all would like.   However, I believe that asking the questions and beginning to think about these issues is important.

I’ve said before that I didn’t see this housing/mortgage bubble coming, but I do see some nasty things coming in the future when it comes to inflation and interest rates and I intend to keep talking about it to help others prepare for it.

Stay tuned……

Tom

The Fed, Inflation

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