Not a recession?
The economy grew at a pace of just under 1.0% in the first quarter of this year. While this is not a cause for celebration, it is growth and the very definition of recession requires that the economy is contracting instead of expanding. Even consumer spending grew an anemic 0.2% last month. Therefore, regardless of the fact that Warren Buffet says that we are in a recession already, the statistics do not yet show this fact. What if we do not fall into a recession?
Well, a recession would mean that rates stay low and the Federal Reserve Board is focused on stimulating the economy. Low growth puts the Fed focus on inflation first as we have entered into a period of "stagflation." We have already seen rates rising to reflect this difference. While there may be only 1.0% difference in growth rates between one and the other, the economic remedies and market reaction can differ significantly. Since the housing sector is the weakest within the economy, this sector needs lower rates as part of the stimulus package.
On the other hand, don't get mesmerized by the numbers. Warren Buffet could very well be right. An important segment of growth in the first quarter was due to a lower trade gap and this was fueled by a lower level of imports. We import less when our consumption goes down. Even consumer spending did not grow when inflation was taken into account. So there is room for the economy to slide further and this may reduce upward pressure on rates. San Diego California Realtors
Home Mortgage Rates Rise To Over 6%
Freddie Mac yesterday released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 6.08 percent with an average 0.6 point for the week ending May 29, 2008, up from last week when it averaged 5.98 percent. Last year at this time, the 30-year FRM averaged 6.42 percent.
The 15-year FRM this week averaged 5.66 percent with an average 0.6 point, up from last week when it averaged 5.55 percent. A year ago at this time, the 15-year FRM averaged 6.12 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.62 percent this week, with an average 0.5 point, up very slightly from last week when it averaged 5.61 percent. A year ago, the 5-year ARM averaged 6.19 percent.
One-year Treasury-indexed ARMs averaged 5.22 percent this week with an average 0.6 point, down slightly from last week when it was 5.24 percent. At this time last year, the 1-year ARM averaged 5.57 percent.
(Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage.)
"Mortgage rates drifted up this week over market concerns that the Federal Reserve Board may raise short-term rates later this year," said Frank Nothaft, Freddie Mac vice president and chief economist. "A recent working paper published by the Federal Reserve Bank of Minneapolis suggested that the recent rate cuts run a risk of unhinging long-term market expectations for inflation. Indeed, market inflation expectations increased over the last few weeks and the federal funds futures market now has a 25 basis point rate hike priced in by the end of the year.
"While existing house prices continue to decline, new home sales unexpectedly rose in April and the number of month’s supply of new homes for sale fell from 11.1 months in March to 10.6 months in April. Moreover, the median sales price for new homes rose 1.5 percent in April from the same month in 2007, representing the first yearly increase since November 2007." San Diego California real estate agent