July 20, 2011
Illinois Real Estate
"WHAT GOES UP... MUST COME DOWN?" Gas prices have dropped at the pump lately, but the markets are more focused on movement in the rest of the economy. Hereís a look at where some important economic indicators are headed... and what they mean to you!
Fill íer up... oilís down! Late last week, crude oil fell under $90 per barrel after the International Energy Agency (IEA) said it would release 60 Million barrels of oil in the coming months to offset the loss of production in Libya.
Lower expectations for economic recovery. The big news last week was the Fed FOMC meeting and the release of the Fedís Policy Statement. While there werenít many surprises to come out of the meeting, the Fed did revise its forecast for the 2011 Gross Domestic Product (GDP) lower and acknowledged that the economic recovery is a little slower.
Frustratingly high. On Unemployment, the Fed stated that the pace of job growth is "frustratingly slow" and that it believes the Unemployment Rate will average 8.6% to 8.9% in the 4th quarter of 2011...which is actually higher than earlier forecasts of 8.4% to 8.7%.
Inflation on the rise? The Fed also raised expectations for Core Inflation, which strips out volatile food and energy costs. This is important because if inflation picks up, Bond prices will move lower - since yields have to move higher to attract buyers to compensate them for the pickup in inflation. And that means home loan rates may move higher as well.
Where are Stocks headed? The Fed said the second round of Quantitative Easing (known as QE2) will end as scheduled at the end of June - but there was no mention of a third stimulus package (which would be known as QE3). Their silence on this point was fairly deafening. Many experts have wondered about the possibility of a third round of QE, but it doesnít look to be in the cards at this point. Itís important to note that the Stock market did not like that there was no mention of QE3, especially since Stocks have only risen the past couple of years when the Fed has been buying - like during both QE1 and QE2. It will be very interesting to see how Stocks behave once the QE2 support is removed.
Misery loves company? Hereís an interesting fact for you. Believe it or not, thereís actually a "Misery Index." This Index takes into account both inflation and the Unemployment Rate. Currently, itís just slightly below the level seen in December 2009, which is when the economy was still in the midst of the credit crisis. To put this in perspective, we haven't seen the Misery Index this high since 1983. And what is a bit concerning is that the Index has climbed higher each month so far during 2011. With inflation rising higher still and unemployment not ticking down, the upward trend may well continue in the near future.
Better than expected... but whatís the catch? Durable Goods were reported better than expected last week. It wasnít a blockbuster reading, but it was good news in light of concerns that the economic recovery is slowing. That said, thereís a catch to consider if you or someone you know is looking to refinance or purchase a home. The recent slowdown in the economic recovery has actually helped improve Bonds and home loan rates. But if the slowdown proves to be just a minor bump in the road to recovery and if future reports show modest improvements, home loan rates could move higher rather quickly.
The good news is that home loan rates are still at historical lows, making this a terrific time if you or someone you know might be thinking about refinancing or purchaing a home. It only takes a few minutes to see if you can benefit from the situation.