Last week in review

(April 25 – 29, 2011) 

Last week the Federal Open Market Committee (FOMC) met, followed by the first-ever Fed Chairman’s press conference. Here’s a summary of the main points that Chairman Ben Bernanke shared:

The downtick expected in Gross Domestic Product (GDP) is “transitory;” the economy’s temporary sluggishness is somewhat a result of high oil prices, which he believes are also temporary in nature.

Inflation has picked up in recent months but long-term inflation remains subdued.

The Fed will complete the $600 billion of Quantitative Easing 2 (QE2) purchases through June, as originally planned.

So what does all of this mean for home loan rates in the short and long term?

An important factor to keep in mind is the U.S. dollar, which continues to decline. How the U.S. dollar performs after QE2 may have a meaningful effect on the bond market and home loan rates. A persistent weak U.S. dollar is ultimately not good for bonds or home loan rates, as a continued decline would make U.S. dollar denominated assets like treasuries and mortgage bonds (to which home loan rates are tied) less attractive. A weak dollar is also inflationary; however, it does make exports less expensive.

The bottom line is this: In the short term, bond prices are close to a position to break out higher, which would lower home loan rates further. Longer-term, how the economy performs post-QE2 will determine which way bonds and rates are headed.

If the economy, which still has high unemployment, doesn’t pick up on its own post-QE2, then the Fed will continue its accommodative monetary policy as much as it can to avoid inflation. This is to support the economy and push stocks higher still, but this would have a further negative effect on the U.S. dollar, as well as bonds and home loan rates.

As you can see in the chart below, bonds and home loan rates have improved due to the slowing in the economy. We will be watching closely to see if this trend continues

Chart: Fannie Mae 4.0% Mortgage Bond (Friday, April 29, 2011)

In the news this week (May 2 – 6, 2011) 

Below is the economic report calendar for this week which has a heavy dose of job news.

Can you make sense of it all??  Our local number cruncher…after years of looking at housing numbers officially “CALLED THE BOTTOM”.   Tough call, but could it be.  All factors point to yes, unless new housing supply is dumped on the market (foreclosures).

But, if it is the bottom – that only means one thing… BUY BUY BUY!!

Call me today to talk more about this;

Paul Wallin, Professional Realtor
208-288-2976
paul@idahorealtyinfo.com

www.realestateinmeridian.com
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