July 20, 2011
Real Estate Lenders
"Greece is the word." Last week, both renewed problems in Greece and inflation news dominated the headlines and made for some volatile trading. What happened, and what was the impact on home loan rates? Read on for details.
In Greece, the riots continued as people protested further pay cuts and tax increases to help close their unsustainable budget deficit. Then on Friday, Greece announced some reshuffling within their Parliament and it also appears as though the country will receive some sort of bailout to meet near-term financing needs. With 20,000+ people rioting in the streets, the government had to do something to calm the markets, but the Greece story is far from over.
Shaking up the Parliament won’t fix the long-term debt problems, nor is it likely that a short-term bailout, if it happens, will help Greece avoid some sort of debt restructuring, re-profiling or outright default. One impact of the volatility in Greece is that it has caused some flight to safety buying of US Dollar denominated securities like Treasuries and Mortgage Backed Securities, upon which home loan rates are based. This helped Bonds and home loan rates last week, which was a good thing, since signs of inflation also heated up last week and Bonds and home loan rates would have likely worsened on that inflation news.
Remember, inflation is the arch enemy of Bonds and home loan rates, like Kryptonite to Superman, because inflation erodes the value of the fixed return provided by a Bond, which causes home loan rates to rise. And last week, both the Producer Price Index (which measures inflation at the wholesale level) and the Consumer Price Index (CPI) were both reported hotter than expected, with the Core CPI rising by 0.3%, which was the largest monthly increase in three years. While the Fed continues to say that the increase in inflation is transitory (i.e. short in duration, temporary or not persistent), more signs of inflation in the coming weeks and months could hinder Bonds and home loan rates from further improvements.
The bottom line is that home loan rates still remain near some of the best levels we’ve seen this year, and it’s important to take advantage of these levels while they remain.
Another full week of economic reports is ahead. Look for:
A double does of housing news with Tuesday’s Existing Home Sales Report and Thursday’s New Home Sales Report. The regularly scheduled Federal Open Market Committee meeting on Tuesday and Wednesday. Given last week’s hotter than expected inflation news, will the Fed still say inflation is transitory?
Thursday also brings another weekly Initial and Continuing Jobless Claims Report. Last week’s Initial Jobless claims fell 16,000 to 414,000 and while the decline is good news, this is the tenth straight week that Jobless Claims have remained back above the 400,000 level.
Rounding out the week on Friday are two important reports on the state of the economy: Durable Goods Orders, which gives us an update on consumer and business buying behavior on big-ticket items, and Gross Domestic Product, which is the broadest measure of economic activity.
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