Is it Time for a Change?

Two Fed Governors are speaking out today, one for and the other against a September rate hike.  Hedge fund managers and purveyors of bonds are also chiming in. The reason why opinions vary is because there will be positive and negative ramifications when rates do start to increase; one answer will not fix all of the challenges facing our economy.  While I think that raising rates is a healthy thing to do, I don’t see that the economic indicators of well-being are any better than they were a year ago.  It’s sort of like kicking your 30 year old son out of the basement.  Sure, he still can’t hold a job, but dude, it’s time to move on. The question is when and how.

The only economic report out today that offers any guidance is the Consumer Price Index, which measures inflation at the level that you and I experience it.  The CPI rose 0.1% last month and only 0.2% from this time last year.  That annual number of almost zero is a rare occurrence.  Perhaps even more interesting though is that when you remove the cost of food and energy from the inflation equation, CPI rose 1.8% from a year ago–meaning that the retail cost of these two sectors has decreased from a year ago, a rare occurrence indeed.  “Hey Johnny, your mom and I would like to talk with you about your future…”

Trends in Home Sales

As Existing Home Sales ebb, New Home Sales are on the rise.  February saw an 8% uptick to 539,000 annualized units closed, which is 14% above expectations and represents roughly 10% of all homes sold last month.

The Consumer Price Index (which measures the relative cost that we retail suckers pay for our stuff) rose 0.2% last month, and 1.7% from last year–right in line with the Fed’s generalized inflationary goal for the year.

Mortgage Pricing on Wall Street continues upward, helping set the stage for lower interest rates ahead.


Inflation numbers so far this week (as construed by the leading economic indicators of Philly Fed, Producer Price Index, and Retail Sales) have shown it tame at best and could be interpreted by some as a foreshadowing od widespread deflation.  Today’s Consumer Price Index shows that the cost of purchasing stuff by households across the country has declined in tandem with the cost of manufacturing said goods by -0.4% since the prior month.  In both cases, this is the lowest reading in the last six years and has caused many to call for the Feds to start hiking interest rates.

Contrary to the deflationary decriers, my untrained take is a little (in my biased opinion) more level-headed.  It sees obvious enough to me that the costs of manufacturing and distributing goods for sale has declined commensurate to the cost of fuel this last month and not a result of a domestic economic downturn.  So while the black clouds brewing overhead might alarm some, I believe we should just take advantage of the beautiful scenery thus created because it won’t last forever.  Hence the picture.  Translation: interest rates are really good and we should take advantage of that.

I believe that my 10th Grade Creative Writing teacher would be proud right now.

I am doing a lot of no-cost FHA loans at 3.5% and Conventional 30 year no-cost loans at 3.875% this week.  I realize that most of you are enjoying interest rates that are already lower than this, but if not, we need to talk.

FOMC Meeting Concludes

It’s Fed Day.  The Federal Open Market Committee will conclude its two day closed-door session with a press conference at 12:30 MDT.  It is anticipated that the Fed will address whether they will hold course and maintain rates at near zero levels for “a considerable time”.  That “time” has been hitherto been interpreted as second or third quarter of 2015.
The economic date released since the last meeting has not been what anyone could consider “strong”; today’s Consumer Price Index shows prices at the consumer level have contracted by a fraction of a percent from last month–down 0.2% versus an anticipated flat reading of 0%.
On the other side, the National Association of Home Builders’ Housing Market Index rose four points to 59 today (the threshold of 50 and above represents an optimistic outlook in the new construction arena).
Thirty year FHA loans are at 3.625% and Conventional loans are at 4.125%. Fifteen year rates are way lower at 3.0% (APR will be higher, depending on the loan and down payment amounts, and amortization term–as closing costs and the presence of mortgage insurance affect each loan differently.)

Back to School

After a summer of laisser aller scheduling, it’s nice to get settled back into a routine with the kids heading back to school today.  My first lesson is that the carpool lane at the junior high is substantially more complex than that of the elementary school.   You know who didn’t take the summer off is home builders; Housing Starts rose almost 16% in July alone to raise the annual units to just back over 1M.  Building Permits are also higher than expected, at 1.052M. Inflation at the retail level was moderated with the Consumer Price Index registering a 0.1% modest gain, dropping the year-over-year increase to a nice round 2.0%. Thirty year FHA loans are at 3.5% and Conventional loans are at 4.125%. Fifteen year rates are way lower at 3.0% (APR will be higher, depending on the loan and down payment amounts, and amortization term–as closing costs and the presence of mortgage insurance affect each loan differently.)