Keep Track of the Markets With HSH’s Market Trendsby Tim Manni
Last week was a historic one for the financial industry, and the news, no matter how good or bad, keeps on coming. Keep on top of the latest market news by subscribing to HSH’s weekly Market Trends newsletter. How did the government takeover of Fannie Mae and Freddie Mac affect mortgage rates?
September 12, 2008 — Finally ending weeks of speculation, Federal regulators took the reins of Fannie Mae and Freddie Mac this week. By doing so, the government ended any questions about the solvency of the two GSEs and sparked a sharp decline in mortgage rates for good credit quality borrowers. We’ve likened it to a ‘relief rally’, since investors now know that the functionality of Fannie and Freddie will continue, and that their previous loan guarantees will remain in force. Essentially, the market is reassured that the familiar mortgage market of yesterday will continue for a least a while longer.
The closely watched Conforming 30-year FRM put in a 41-basis-point decline, among the biggest one-week drops in memory (usually, large and fast changes are to the upside). Even 30-year fixed Jumbo rates managed a solid dip, declining from a flat 7.5% last week to 7.27% this week. We suspect that the prospect of unclogging Conforming financial arteries makes it easier to clear those loans off the books, increasing potential cash flow for other loans, such as jumbos.
As well as up-to-date financial news, Market Trends analyzes various weekly economic indicators, and discusses how each report meshes with the current state of the market:
Headlined by the declining labor market, the slowing economy has renewed speculation that the Fed won’t need to raise rates anytime soon. That, coupled with oil’s decline back to about $100 per barrel, has lent some optimism that inflation will begin to ease in the months ahead. Together, those factors have actually sparked some calls for the Fed to cut interest rates. The inflation arc has quite some time yet to fully play out, and the economy has been sporting positive GDP numbers for much of this year. The Fed is probably still more predisposed to an increase in rates (or no change) than to any sort of cut for the foreseeable future.
Producer Prices did fall back by a larger-than-expected amount in August. Falling fuel and industrial metals prices were the cause, but prices remain nearly 10% above a year ago. Excluding the most volatile components, PPI rose by 0.2%. Some reflection of the recent fall in material prices was seen in the earliest stages of production, a hopeful sign for the future, but goods closer to being finished are still sporting strong price increases. Regardless, the easing in input costs may simply be turned into greater profitability for a while before prices begin to decline downstream.
HSH’s free, weekly Market Trends Newsletter, an in-depth analysis of various financial markets of the week prior, is published every Monday. Email subscribers — receive it in your inbox by Friday night, so sign up today!