Rates are Falling!

There has been a lot of exciting events in the news. This week we continued to see mortgage rates fall as news of a pending bailout for the big three automobile companies has sputtered to a halt. It also seems as if the 4.5% mortgage rate Treasury program is gaining some momentum and Americans’ debt shrinks for the first time ever. President-elect Obama’s team has expressed interest in supporting the Treasury’s program to purchase Fannie and Freddie securities that are backed by the low rate loans. This is substantial because the outgoing Treasury leaders do not want to start this program just to see it die in January. The Treasury has now placed this program on the fast tract and hopefully we will see something soon. Mr. Obama’s support might make this program a reality and we all know this could have a great effect on the housing and real estate industry!

Last night, the Senate squashed any hopes for an immediate bailout for the auto industry. The fear is that allowing the big three to fail will have large implications for the entire economy due to the fact all the companies are already holding a large amount of debt. If they fail, then the debt will not be repaid and financial institutions will have to take another huge loss. In addition to all the jobs that would be lost directly and indirectly due to the auto failure, I imagine that the government will provide some sort of assistance to prevent this failure. Until this issue is resolved look for continued volatility in all financial markets.

Some positive news is that consumers for the first time ever reduced household debt by about $30 billion dollars. This is both good and bad. It is good because less debt creates more financial freedom for consumers in the long run. Consumers have also started to increase their savings rate largely due to the economic fear and homeowners can no longer rely on house appreciation to create wealth. It is bad because our economy has come to rely on consumers spending every penny they make to create growth.


Damian Cook

Interest Rate Trend Forecast
Long Term (20 days out and greater) – Fractionally lower interest rates


Sources:
Americans’ Debt Shrink-First Time Ever
http://money.cnn.com/2008/12/11/news/economy/flow_of_funds/index.htm?postversion=2008121118
Obama Team Boosts Paulson Proposal to Spur U.S. Home Purchases
http://www.bloomberg.com/apps/news?pid=20601068&sid=adXuRpUpScIo&refer=economy
Auto Bailout collapses in Senate
http://money.cnn.com/2008/12/11/news/companies/auto_bailout_senate/index.htm?postversion=2008121208
Market Alert by Larry Baer

4.5% Mortgage

The big news the in the headlines this week is the possibility of mortgage rates dropping to 4.5% in order to boost housing sales. I am very excited about the possibility of this program. It will give an incentive to buyers to get in the market, help reduce standing inventory and have a far reaching economic ripple effect. If first-time homebuyers start buying, this enables those who desire to move into a higher-priced home, the ability to do so; thus, causing a positive chain reaction. The program will be limited to home purchase only. The program might be attractive to lawmakers because it has the ability to get the economy back on track by fixing the housing problem with out bailing out homeowners and lenders. This program will need support from key lawmakers and the incoming Treasury Department Chairman. However, right now the program is still a “pie in the sky.”

Additionally, Bernanke has been in the news asking for more assistance from public funds stating that the private sector is unable to fix this mess on its own. He also feels the central bank can not fix the economy solely through rate cuts and emergency lending programs. The FDIC Chairman is calling for part of the $700 billion bailout to be used quickly for loan modification to prevent further foreclosure. It is wonderful to see all these ideas coming forward to attempt to fix the crisis. However, I feel we need more coordinated efforts across all organizations and the government. Maybe it is time for the President-elect Obama to step forward a take an active roll in getting everyone on the same page. Only time will tell!


Interest Rate Trend Forecast
Short Term (Next 20 Days) - Steady interest rates
Long Term (20 days out and greater) – Fractionally lower interest rates


Sources:
http://www.marketwatch.com/news/story/treasury-may-set-mortgage-rates/story.aspx?guid=%7B2997E462-B056-43E3-AF13-70EB82403632%7D&dist=msr_27

http://www.bloomberg.com/apps/news?pid=20601068&sid=abINDLzbaE54&refer=economy#

Market Alert by Larry Baer