Charleston SC Real Estate Blog

“INFLATION IS AS VIOLENT AS A MUGGER, AS FRIGHTENING AS AN ARMED ROBBER, AND AS DEADLY AS A HIT MAN.” ~ Ronald Reagan. And although you might not describe the effects of inflation in such strong terms yourself…rest assured that the effects of inflation have crept into your home, your gas tank and your wallet. And inflation is also the nemesis of Bonds and therefore home loan rates, because just like inflation erodes the value of the dollars you spend, inflation erodes the value of the fixed return a Bond provides. And last week, Bond pricing worsened on news of inflation, causing home loan rates to move higher by about .25% across the board and reaching the highest levels seen in weeks.
The week was shortened by the Memorial Day holiday, but right out of the gates, inflation concerns abounded. The Consumer Confidence Report indicated that consumer inflation expectations are at an all-time high…meaning that consumers are seeing inflation as a real threat to their own financial situation. Rising energy costs and worldwide inflation fears continued to pummel Bonds lower - in fact, so low that they moved below a tough technical floor of support at the 200-Day Moving Average. This is important because Bonds have made a decisive cross over the 200-day Moving Average on only three separate occasions within the past three years. This means that barring a timely reversal, we are likely seeing a shift in the market towards higher home loan rates.
Friday brought a little good news on inflation, as the Core Personal Consumption Expenditure (PCE) Index showed that inflation does remain within the Fed’s comfort zone. While Bonds and home loan rates improved somewhat on the news, the trend for the week was definitely worse overall, as the big picture on inflation cost Bonds and home loan rates some hard earned ground.
Forecast for the Week

This coming week, one economic report in particular bears inflated significance…Friday’s release of the infamous monthly Jobs Report. It will reveal, among many other things, the number of jobs lost or gained during the month of May. Last month’s Jobs Report indicated that 20,000 jobs were lost in April, and while this was better than the expected job losses of 75,000, it is possible that the reported number understated the actual number of jobs lost, due to how the Department of Labor averages their count. And part of each month’s report is “revisions” to the several prior months’ numbers…which this could be quite a wild card for Bonds and home loan rates.
Last month’s Jobs Report, which was indeed more positive than expected, caused Bonds to fall a whopping 134bp in a matter of minutes, and home loan rates worsened quickly. Why? Because even though the news wasn’t great, it sure was better than anticipated…and this caused money to flow out of Bonds, and into Stocks…which caused Bond prices and home loan rates to worsen. This week’s Jobs Report could sure be another mover, and if the report or revisions indicate positive news on the jobs front, home loan rates will likely worsen in response.
Remember when Bond prices move higher, home loan rates move lower…and vice versa. And as you can see in the chart below, Bonds moved lower for most of the week, and actually closed below an important technical level at the 200-day Moving Average. This is a very important level, as it can act as either a very strong floor of support helping Bond prices not to fall below it…or as an equally strong ceiling of resistance, preventing Bonds and home loan rates from improving above it. And with Bonds currently having fallen beneath it, I’ll be watching closely this week to see if Bonds have indeed fallen and can’t get up…or if they can break above that tough level later this week and help home loan rates improve.

New home sales unexpectedly rose 3.3% in April, the first increase in six months, the Commerce Department said May 27. As a result, the inventory of unsold new homes fell slightly to a 10.6 months’ supply versus the 11.1 months’ backlog recorded in March.
The Commerce Department further reported that the median price of a new home sold in April rose to $246,100, up 1.5% from April 2007. In a separate report, however, the Standard & Poor’s/Case-Shiller Index showed existing home prices falling 14.1% in the first quarter of 2008, compared with a year earlier, the biggest year-over-year decline since the index began in 1988.
For the week ending May 29, interest rates on 30-year fixed-rate mortgages rose to an 11-week high, Freddie Mac said.
More mixed economic news came from the industrial sector. Orders to U.S. factories for durable goods — those expected to last three or more years — dropped 0.5%, dragged down by big declines in demand for commercial aircraft and autos. However, excluding transportation, orders rose 2.5% in April, the biggest gain in nine months. Orders for electrical equipment and appliances surged 27.8%, the biggest increase on record.
Another boost for the economy came on May 29 when the Commerce Department upwardly revised first-quarter gross domestic product or GDP — the total tally of the nation’s goods and services — from its previous estimate of 0.6% to an annual rate of 0.9%.
Finally, despite the government’s sending out billions of dollars in stimulus checks, consumer spending nudged up a small 0.2% in April, half of March’s increase, the Commerce Department said May 30. Personal income also edged up 0.2% in April, again half of March’s 0.4% increase.
This week, watch for the May unemployment report due out on June 6.
Economic data compiled from government reports and news services Bloomberg.com, msnbc.com, cnbc.com, cnn.money.com and Yahoo Economic Calendar.

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 Hello All, I have enclosed a forecast for the remainder of this week. Rates continue to rise slowly, and then fall back down. If you ever need any help working on estimated payments for your clients you can go to www.VirtualMortgage.biz to get any information you would need. 
 
Forecast for the Week

After last week’s thin economic calendar, where Stock market action and technical factors had a big impact on Bonds and home loan rates, this coming week brings a much juicier economic report agenda.
Retail Sales for April will be reported on Tuesday, followed by Wednesday’s Consumer Price Index (CPI). This widely watched measure of consumer inflation will take special significance, now that the Fed has signaled their current rate cutting cycle may be at an end. On Thursday comes a read on the new construction housing market, with Housing Starts and Building Permits. We will have to see if these reports can keep Bonds above their 50- and 100-Day Moving Averages…as seen in the chart below. If the reports are economically weak or negative, Bond prices and home loan rates should hold their ground, and perhaps even find some improvement.
Remember when Bond prices move higher, home loan rates move lower…and vice versa. And right now, there’s an important story breaking that will be very important to stay tuned in to. Last Friday, oil prices reached a lofty $126 a barrel, and Goldman Sachs is forecasting that black gold could rise even higher, perhaps as high as $150 - $200 a barrel in the next twelve months. If they are right, the inflationary effects of high oil prices could pressure Bond prices to move lower, causing home loan rates to move higher. This will be a story to watch carefully in the days and months ahead.

    Rates today are as follows:
 
   30 year fixed/Conforming: 5.75%
   30 year fixed/Jumbo: 7.25%
   7 year arm/Conforming: 5%
   7 year arm/Jumbo: 6.625%
 
Thanks,
Matthew Mieras, xco
Virtual Mortgage
843-849-8188 Office
843-670-5512 Cell
Matt@VirtualMortgage.biz