Virginia Beach Real Estate - Mortgage Market Recap-May 5
The expected happened last week: the Federal Reserve cut the federal funds rate by 25 basis points to 2%. Immediately afterwards, many commentators started wondering aloud if this was the end of a series of rate cuts that began last August. The growing consensus is that it could be. Markets are already betting that further cuts in the fed funds rate are unlikely, and more economists are warning of the unintended consequences of taking the rate down too far and keeping it there for too long.
The chief unintended consequence is inflation, which continues to push higher. Consumer price inflation is running at an annual rate of 2.6%, while the core inflation rate, which excludes food and energy prices, is running at 2.2%. With oil prices rising to unprecedented levels and food prices surging, its only a matter of time before inflation challenges economic growth for top spot on the Feds priority list.
On the day the Fed cut the fed funds rate, first quarter numbers for U.S. gross domestic product (GDP) were released. Contrary to widespread expectations for contraction, GDP actually grew during the quarter, albeit at a snail-like annual rate of 0.6%. Lest we get too excited, it should be noted that growth was almost entirely due to a build-up in inventories, which added 0.8 percentage points to the growth rate. Since such a build-up occurs when producers overestimate sales, the normal course of action is to cut production, which could mean slower growth in coming months.
Nevertheless, people continue to work. The U.S. unemployment rate fell 0.1% to 5% in April, signaling that any impending economic slowdown has yet to gather significant pace.
Economic
Indicator |
Release
Date and Time |
Consensus
Estimate |
Analysis |
|
Mortgage Applications
|
Wed. May 7,
7:00 am, et
|
None
|
Important. Mortgage activity continues to slump on slow housing sales and rising interest rates. |
|
Productivity & Costs
(1st Quarter 2008)
|
Wed. May 7,
8:30 am, et
|
Productivity: 1.0%
(Increase)
Costs: 0.0%
|
Very Important. The decrease in productivity is expected to mirror the decrease in economic growth. |
|
Pending Home Sales
(March)
|
Wed. May 7,
10:00 am, et
|
1.0%
(Decrease)
|
Important. Markets are expecting a slowdown in the rate of sales decrease. |
|
Consumer Credit
(March)
|
Wed. May 7,
3:00 pm, et
|
$6.5 Billion (Increase)
|
Moderately Important. The consensus estimate will have little impact on credit markets. |
|
Wholesale Trade
(March)
|
Thurs. May 8,
10:00 am, et
|
Sales: 0.1% (Increase)
Inventories: 0.6% (Increase)
|
Important. Inventories increasing faster than sales is another sign the economy is slowing. |
|
International Trade
(March)
|
Fri. May 9,
8:30 am, et
|
$60.2 Billion
(Deficit)
|
Moderately Important. The deficit is expected to increase slightly on higher energy costs. |
|
THE FED AND MORTGAGE RATES
Will the recent cut in the fed funds rate translate into lower Virginia Beach real estate mortgage rates? The answer is an equivocal yes and no. Its possible well see lower rates on some adjustable rate mortgages, but its no slam-dunk. ARMs are more closely linked to the fed funds rate than fixed-rate mortgages, to be sure, but have only fallen about half a percentage point since September. ARMs played a leading role in the recent foreclosure fiasco, which has kept their rates higher than what would normally be expected.
Fixed-rate mortgages, on the other hand, are driven by rates on 10-year treasury notes. Rates on a 30-year fixed mortgage are typically 1.5 percentage points higher than the rate on the 10-year Treasury note, but because of increased risk perception - brought on by higher foreclosure rates and a stagnating housing market - that premium has expanded to 2.3 percentage points.
The 10-year Treasury note rate, in turn, is driven by inflation expectations. On that front, rising inflation concerns are pushing 10-year treasury rates higher.
So whats the outlook for Virginia Beach real estate mortgage rates? The focus is shifting back to inflation, which means rates are unlikely to go much lower. But while inflation could pressure 10-year treasury rates, a narrowing risk premium could offset the impact on fixed-rate mortgages. In other words, odds favor rates moving higher, but not much higher, so anyone sitting on the sidelines waiting for a drastic improvement is likely waiting in vain.
Information provided by Fred Levine, Union Mortgage Group, (757) 287-0551.
For more information on Virginia Beach real estate, visit ButlerTeamHomes.com. Start your Virginia Beach real estate search here.
Also read:
Virginia Beach Mortgage Market Recap - April 22
Virginia Beach Mortgage Market Recap-April 14
Virginia Beach Real Estate - Mortgage Market Recap
|
This post has no feedback awaiting moderation...
|
This site is proudly sponsored by