Mortgage rates, stock market, economy

We closed the week with very disappoint- ing results for the underlying financial instruments that dictate home loan rate

financial markets. The stock markets were not really overjoyed at the Fed’s newly stated position. Stock prices fell after peaking at new record highs for a few of the primary stock indices earlier in the week.

levels, the delivery rate (DR), in spite of a paucity of meaningful econonews releases.

Some of the econonews releases of this past week included September pending home sales falling by 5.6% relative to August. Not a good omen for the fu- ture of home sales. The Case-Shiller home price index reflected a slowing of the pace of price appreciation.

Typically we see home loan rates and bond yields rise when there is favorable indications that the economy is expanding more rapidly and/or there is an increased potential for unacceptable levels of inflation making its way into the economy. We did have
one report that suggested consumers’
expectations for inflation in the future
was higher, but that was nothing more
than a footnote in one release.

Retails sales for September fell by 1/10% and this is worrying retail organizations for the upcoming holiday shopping season. Inflation on the wholesale and manufacturing levels fell by 1/10% while consumer level inflation rose by 2/10% with the core rate up only 1/10% allevi- ating some of the market’s inflation concerns.

We are nowhere close to unac-
ceptable levels of inflation within the
economy. Beyond that, the Fed even
said in their press release this past week
(after their monetary policy meetings)
that they are willing to raise their ac-
ceptable inflation level temporarily as
the economy needs some stimulus to get back on track The stimulus we are referring to is the Fed’s monthl purchase of $85 billion of US Treasury instrument and mortgage-backed securities (MBS-the stuff tha determines the DR).

Initial claims for jobless ben- efits came in higher than expected while ADP job creation figures were less than expected. Of course with numbers like these and the government shutdown it should come as no surprise that consumer confidence has been badly shaken and it plummeted for October. All the news should have pushed rates

The universal reaction of the Fed suggestin higher inflation levels, for whatever reason, was ba for the potential consequences for the long-term infla tion paradigm, or so the markets believed. We do no subscribe to that perspective, but we do not control th

lower, but it didn’t.
Looking ahead to the upcoming week we see

enough fundamental data to turn the tide back in the direction of a downward glide path for home loan rates, but... Stay tuned.

We are seeing a surge of private capital coming into the housing sector. This is a great turn of events.

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