Chaos Rules!
This week has been pretty chaotic for the financial markets. The Fed held rates steady for the first time after a nine month lowering campaign. Mortgage rates came down after a six week rising trend. Unemployment held steady and first quarter GDP was revised up. The mix of bad news and good news has yet to define any particular trend, but the Fed seems to think the economy is getting better.
The central bank’s statement said that the rate cuts it has already made should help lead to improved economic growth ahead, although it cautioned the economy is still weak due to tight credit, a weak housing market and high energy prices.
A critical point will be the next Fed meeting at the first of August when it is thought a rate raising campaign will begin. How the Fed acts then
will give us some true direction on mortgage rates. Fuel prices and problems in housing continue to drag on consumer sentiment. Three housing reports out this week showed continued weakness. I discount the first one, Case-Shiller, as it only covers 20 cities and it’s methodologies are a model not reflecting actual sales. Both the new home report and existing home report showed the number of sales declining from the previous year. Today’s existing home report reflected a 16% decline from May, 2007. Don’t believe the headline that shows a 2% gain…that’s month over month which is irrelevant.
House prices are continuing to drop for new and existing housing. I suspect we’ll see that through the end of the year. From a national perspective, I do believe the bottom is here now, but the numbers won’t reflect it until next year.
Mortgage rates have come off their rising trend, but are still higher than they were six weeks ago by about a half percent. The next two weeks should be a good time to lock a rate and then speculation about the Fed’s next move will send the markets into a tizzy again…only to settle after the Fed meeting August 5th.