Thanks Steve Peterson for providing great economic reports that affect the Incline Village Real Estate Market.  Read on...

Tim Lampe

The credit markets stepped into highly unpredictable territory recently, refusing to follow what most of us considered their own rules. I mean, if the dollar goes up, stock indices go up, right. In last week's case, wrong.

It is a bit worrisome to contemplate what could be causing such a disconnect between the rising dollar and what usually follows--like lower Treasury yields, which also didn't show up. Perhaps a lack of confidence in sovereign debt instruments is spreading all the way to the dollar. If so, interest rates are likely to continue rising, step by step.

At the same time, however, evidence that our economic recovery is firming keeps showing up, so it is very possible that the disfavor shown Treasury securities will soon pass. We'll see.

 

Interest rates remain low:  Conforming 30 year fixed rates are currently 5.125%% with no points (for borrowers with high fico scores, owner occupied, and 25% down for condos or 20% for homes).

 

Jumbo rates for primary residences with 25% down (SFD) up to $850,000 are 4% with no points (5/1 ARM).

 

Please find this week’s economic update below and as an attachment to this email.


Warm regards,

 

 

March 31, 2010

KEY INDICATORS [3/30/10 close]

 Gold $1110.30/ounce [up]

Crude Oil (Brent) $82.17/brl [up]

U.S. Dollar to…

    Euro .7418 [up]

    Japanese Yen 92.46 [up]

6-mo Treasury Bill Yield 0.23%

10-yr Treasury Note Yield 3.87%

[6-month up 1 bp, 10-yr up 21 bps]

11th Dist Cost of Funds 1.786%[-]

30-yr Fixed-rate Mortgage 5.39%

15-yr Fixed-rate Mortgage 4.73%

1-yr ARM 4.49%

[HSH averages rates: 30-yr

up 9 bps,15-yr down 4 bps; 1-yr ARM down 8 bps]

 Mortgage Bankers Association Mortgage Applications Index

week ending 3/19

  Overall

  595.0 (down 4.2%; down 1.9%

the week prior)

  Purchase Money Loans

    227.5 (up 2.7%; down 2.3%

            the week prior)

  Refinancing Loans

    2744.7 (down 7.1%; down 1.7%

the week prior)

 Jobless Claims 3/20

    442,000 – prior week 457,000 – continuing claims at 4.648 m

 

Gross Domestic Product (GDP) 4th quarter 2009 final revision

    Revised to 5.6% from 5.9%

 

New Home Sales Feb

    Down 2.2%

 

Personal Income Feb

    Unchanged from Jan – spending up 0.3% - savings rate down: 3.1%

 

Weekly Commentary

 How can we help but be confused? We reach the point where we understand that our stock indices will rise if the dollar’s exchange rate rises and, further, Treasury security yields will decline if foreign investment in the dollar increases. In fact, these rules of the road begin to make logical sense to us.

 Then we have a week like last week. It appeared that the rules were broken by all the global investors whose confidence in the debt securities of sovereign nations was beginning to fade. Greece is forced to pay a 6.5% yield on the money it borrows from investors, so it is an obvious example of a country whose debt has lost favor in the eyes of investors. Portugal, the security of whose debt was recently downgraded by Fitch Ratings, has also found it necessary to pay a premium to investors in its debt. And the weakness abroad has, until recently, bolstered the strength of the dollar by way of contrast.

 Last week, though, we watched in wonderment as the dollar gained strength against the euro—but Treasury securities, where foreign money tends to go when it seeks a safe haven, weren’t as popular as they have been in the recent past. Indeed, the auctions of 2-year, 5-year and 7-year Treasury notes were all rather weak, with far fewer bidders driving down yields. So yields rose instead and, especially at the longer-term end of Treasury securities, rates rose rather significantly. The 10-year note ended the week at 3.852%, for example.

 It is possible—though the jury is still out—that global investors will be hesitant to rush into Treasury securities in the near term when a worry infects the markets. And that would mean still higher interest rates.

 Though the markets have settled into an easier pace now, we do have a few important tests ahead. One is the employment report for February which will be released on Friday. If it is good, especially if it is surprisingly good, the markets will all but forget the confusion of last week (for a time, at least). If it is bad, if we don’t see gains in the number of employed Americans, it could conceivably produce another day of rising rates.

 Next week, then, we face another set of Treasury security auctions, this time to include 10-year notes and 30-year bonds. The big question on most minds will be whether the demand for these longer-term securities will hold up. Based on this last week, we could see demand fall and yields rise. But of course, in this rapidly moving marketplace with its constant wild swings, next week’s auctions are a long way off, and we have no idea what will happen between now and then to worry or calm the markets. Watch closely, though