Thumbnail Sketch: Yes, the FOMC cut the fed funds target rate by another quarter of a percent, as expected. What’s interesting, though, is the way the credit markets reacted.
Phoenix Mortgage rates, as you can see below, had been edging higher, with the conforming 30-year fixed-rate rising nearly a third of a percent in recent days. At the same time, though, the number of applications for refinancing loans rocketed up 48.2% to a level that was an amazing 39% higher than this time last year.
This tells us a great deal about how the Phoenix real estate market is most likely to react to further rate cuts. (And most reliable experts are already suggesting that the Fed just gave us the minimum cut, and that we’re likely to see an even larger cut in the coming weeks. The stock markets voiced their dismay at the size of yesterday’s cuts by falling significantly.)
Okay—notice that the number of Phoenix applications for purchase money loans only climbed by 3.2%. The resulting index figure—464.3 is well into the good-health zone—is 9% higher than where it stood a year ago. The vigorous action, though, was in the refinancing sector (as we’ve predicted more than once in earlier updates).
The pent-up demand in our marketplace is not so much for Phoenix homes purchases as it is for stable loans with which to replace existing loans. And this is a positive sign. With reasonably low interest rates, people are ready to apply for loans that will help trim the potentially vast numbers of defaults and foreclosures in the near-term future.
This suggests that the Phoenix real estate market may firm more quickly—though “quickly” hardly seems an appropriate word here—and with less pain than has recently been predicted. Still, Mark Zandi, chief economist for Moody’s Economy.com, looked for lower rates in the near term as he analyzed the FOMC announcement yesterday:
“These are all good reasons why the Federal Reserve should have been even more aggressive in their action. Growth has slowed sharply in the wake of this summer’s subprime financial shock. Real GDP is on track to expand not much more than 1% in the current quarter as the housing downturn intensifies and its fallout weighs more heavily on businesses and consumers. Job growth continues to slow, with official payroll data suggesting current gains are about 100,000 per month. After revision these will likely be seen growing closer to 75,000. This is well below the 125,000 jobs per month needed to forestall rising unemployment. Combined with falling house prices and gasoline at $3.25 per gallon, this is making consumers increasingly nervous; the University of Michigan survey recently fell to its lowest level in 15 years outside its post-Hurricane Katrina reading.” Watch, therefore, for rates to fall further soon.
December 12, 2007
KEY INDICATORS
Gold $817.10/ounce [up]
Crude Oil (Brent) $89.99/barrel
[up slightly]
U.S. Dollar to…
Euro .6822 [up slightly]
Japanese Yen 110.68 [up]
6-mo Treasury Bill Yield 3.17%
10-yr Treasury Note Yield 3.97%
[6-mo down 5 bps, 10-yr
up 8 bps]
11th Dist Cost of Funds: 4.233%
30-yr Fixed-rate Mortgage 6.58%
15-yr Fixed-rate Mortgage 6.20%
1-yr ARM 5.93%
[HSH averages rates: 30-yr uo 32 bps, 15-yr up 28 bps; 1-yr ARM up 8 bps]
Mortgage Bankers Association Mortgage Applications Index
week ending 11/30
Overall
791.8 (up 21.3%; down 4.3%
the week prior)
Purchase Money Loans
464.3 (up 3.2%; up 6.1%
the week prior)
Refinancing Loans
2761.3 (up 48.2%; down 15.3%
the week prior)
Weekly Jobless Claims 12/1
338,000 first computation –
353,000 prior week (with 1,000 upward revision)
Employment Report Nov
94,000 new payroll jobs – unemployment rate still at 4.7%
Consumer Credit Oct
Up 2.3% overall – revolving credit up 8.6% - non-revolving credit down 1.3%
Eddie Knoell
-Senior Loan Officer-
O'Dowd & Associates Mortgage Co., Inc.
Office: 602-248-4200
Fax: 602-906-1048
E-Mail: Eddie@OdowdMortgage.com
Website: www.EddieMortgage.com
Wednesday, December 12, 2007
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