Interest rates hit a level of resistance last week amid another group of contradicting economic reports. Consumer Sentiment, which measures both current conditions as well as expectations, dropped on both levels. Rebounds in the housing market, as well as strength in the stock market, are holding up consumers’ feelings about current conditions. While continuing job losses are negatively affecting expectations of the future. I think this sums up the current economy rather well.
Speaking of job losses, last week’s jobless claims fell on both the initial and continuing sides. This continues a trend we have seen for the last couple of months. It will be interesting to see how this trends plays out as we approach the holiday season with respect to retail sales.
Retail sales pulled back sharply in September, but were mostly due to a post-“clunkers” drop in auto sales. If you take out the auto component, retail sales were up .5%, following a 1% increase in August. The market consensus was for a .3% increase.
This week is a rather quiet one with the emphasis being on the housing market. Tomorrow we will get Housing Starts, and on Friday we get Existing Home Sales. I expect both numbers to meet expectations, especially with the looming end to the First Time Homebuyer credit, as people rush to take advantage of it before the November 30 deadline. There are rumors it may be extended, but I wouldn’t count on it. The government is looking to diminish its fiscal footprint in this recession because all the money it is spending is hurting the value of the dollar. And since we are getting some signs that the recession is easing, I wouldn’t expect major help from the government much longer. Take advantage of low rates and the credit while you can.
Back to interest rates for a moment. I have mentioned a “ceiling” of resistance in past weeks that rates cannot seem to break through. This ceiling is actually a moving average based upon technical and market factors. Two weeks ago rates had reached a price of 102 (don’t worry about the number itself) but couldn’t go any higher. The higher this number, the lower rates are. Since reaching this number, rates have headed higher, and this ceiling is now at 101. So as the price of rates fall (it now stands at 100.70), rates go up as well. But remember, this ceiling/number is a moving average. So the while the ceiling may have been 102 two weeks ago, it is now at 101 with rates trading on the open market at 100.70. This 100.70 number moves all day long and is the determining factor in the actual cost of rates each day. But the ceiling moves along with it and as the 100.70 number drops, so does the ceiling. While the ceiling number moves every day, the meaning of it stays the same: It is a technical factor that rates have an incredible time breaking though regardless of what the actual number may be.
Since the ceiling of resistance has dropped, and I anticipate the ceiling to stay at or near its current levels, I recommend locking all deals of 30-45 days. We may see instances where rates come close to the ceiling, but I do not think the technical factors are present to allow rates to break through this number and improve all that much. If you want to gamble, go to Vegas or Atlantic City. If you want a rate you can brag to your friends/family about, lock in a rate now and forget about it.
Thanks for reading and I hope you learned something.
Have a great week!
Mike
Mike Haeffner, CMPS
Vice President
1st American Trust Mortgage
10270 Old Columbia Road, Suite 150
Columbia, MD 21046