Rate Watch #749 Deficit Reduction Draft - an Antimatter Earmark
November 19, 2010
by Dick Lepre
[email protected]
www.loanmine.com
| Product | Rate | Points | Est. APR* | |
|---|---|---|---|---|
| CONFORMING LOAN PRODUCTS (Loans less than $417,000) | ||||
| 30 Year Fixed conforming | ||||
| 4.375% | 1.00 | 4.53% | ||
| 4.5% | 0.00 | 4.56% | ||
| 15 Year Fixed Conforming | ||||
| 3.75% | 1.00 | 4.01% | ||
| 3.875% | 0.00 | 3.98% | ||
| High-balance CONFORMING LOAN PRODUCTS (Loans greater than $417,000 and less than Hi-Balance amount for your county) | ||||
| 30 Yr Fixed Hi-Balance | ||||
| 5.375% | 0 | 5.45% | ||
| 5.00% | 1.0 | 5.16% | ||
| 15 Yr Fixed Hi-Balance | 4.5% | 0 |
4.62%
| |
| 4.125% | 1 | 4.40% | ||
* conforming loan limits for 2010 are:
1 unit $417,000
2 units $533,850
3 units
$645,300
4 units $801,950
Note that the above table now means something different than it used to. "Conforming" now means "traditional conforming" (<$417,000 for SFR is the new jumbo-conforming which depends on county.) You can find the new High-Balance Conforming limit for your county here. That page says "FHA" but those amounts also pertain to FNMA & FHLMC.
You must not read these as quotes because the rate and price which you will get depends on your precise situation and is affected by, but not limited to, the following factors: credit scores, property type, occupancy, income, value of property, length of time of the rate lock, whether of not values in your area are declining, and cash out (if refinancing).
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II) Fundamentals
Initial Jobless Claims were 439,000. Leading Economic Indicators was +0.5%, consensus was +0.6%, previous was +0.3%. A large component of LEI is money supply and it is driven up by QE. Core CPI was flat, consensus and previous were +0.1%. Overall CPI was +0.2%, consensus was +0.3% and previous was +0.1%. Housing Starts were 519,000 (annualized), consensus was 600,000. Overall PPI was +0.4% last month. Consensus was +0.8%. Core PPI was -0.6%. Consensus was +0.1%. Industrial Production was flat. Capacity Utilization 74.8%. Retail Sales was +1.2% overall and +0.4% ex-auto. Overall was above consensus and previous. Ex-auto was at consensus and previous. It may be the case that we are seeing the same thing we saw in 2008 when the "throw these bums out" voter attitude translated into an immediate uptick in spending. The dollar index is at a six week high while the Fed is increasing money supply by QE and we are having a higher dollar and higher Treasury yields.
III) The Technicals
The daily is narrowly bearish. The weekly is bearish and, while the monthly is still bullish, it is showing sign that the secular bull market is probably in the later half of its cycle.
I must point out that Jim Grauer (StoMaster) has started updating his comments about the bond tech almost every day. Check it out at StoMaster. This is complex stuff. You need to keep in mind that this is a technical analysis which deliberately blinds itself to economic fundamentals and looks only at the data (30 year Treasury bond futures). This technical analysis is presented here because I believe that it supplements analysis of fundamentals. At a time such as the present when there is gigantic uncertainty and statistical volatility the vale of technical analysis is diminished.
IV) Analysis
Treasury yields and mortgage rates shot up this week. I am sure that the purpose was to make me look really stupid for last week's newsletter encouraging folks to get ready for another dip in rates. The initial reaction is that the Fed's QE is a bust and will be inflationary. After all that is what I wrote a month ago. Now we have every politician and political commentator expressing their opinion about QE. I expressed my reservations but believe that the people at the Fed are a lot smarter about this than I am. Undermining confidence in the Fed is a fruitless activity. I am willing to say that I expressed my reservations but that I hope that I was wrong and that QE will not be inflationary.
V) Fiscal Sustainability
Scientists at CERN announced this week that they had stabilized 38 atoms of antimatter hydrogen for 0.1 second. The draft report of the deficit reduction commission strikes me as an antimatter earmark.
Foe several years I have made the case here for fiscal sustainability. See for example Rate Watch #710. The cochairmen of the deficit reduction commission have boldly suggested a comprehensive plan.
The commission started with 10 guiding principles:
We have a patriotic duty to come together on a plan that will make America better off tomorrow than it is today
The Problem Is Real –the Solution Is Painful –There’s No Easy Way Out –Everything Must Be On the Table –and Washington Must Lead
It Is Cruelly Wrong to Make Promises We Can’t Keep
Don’t Disrupt a Fragile Economic Recovery
Protect the Truly Disadvantaged
Cut and Invest to Promote Economic Growth and Keep America Competitive
Cut Spending We Simply Can’t Afford, Wherever We Find It
Demand Productivity and Effectiveness
Reform and Simplify the Tax Code
Keep America Sound Over the Long Run
Their plan is comprehensive and painful. As cochairman Alan Simpson said, "We have harpooned all of the whales in the ocean, and some of the minnows." I don't think that it is at all relevant how many commission members are willing to go along with the draft. The cat is out of the bag. Congress and the President can either go along with this (or something darn close to this) or they can argue and postpone the solution because they are more concerned about reelection than they are about the health of the nation's economy.
The fact that most folks in Washington reacted to the draft with horror indicates to me that the cochairmen did an excellent job. These guys are taking on the military industrial complex, AARP, the mortgage and housing industries, NPR, farmers and labor unions. I find it positive that the President said “So before anybody starts shooting down proposals, I think we need to listen, we need to gather up all the facts."
The situation is that we have a plan on the table which may work. We will now see if politicians really care about the future health of the U.S. economy. One of the items in their proposal is a substantial change to the tax code to limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000. While I won't get the support of NAR (Realtors) or NAMB (mortgage bankers) I am willing to take that shot in the face if it means that the nation's economic woes are being fixed.
The problem with the draft is that it is so bold that it may get too little backing from Congress. What we may see is the harsh reality that people in Congress are more likely to place their getting reelected above the nation's economic health. Protective bubbles, generated by groups who want their own interests protected, may form to kill most parts of the proposal.
This draft is precisely the opposite of earmarks.
If you have something to add to this discussion please post a comment on the blog.
Dick Lepre
RPM - SF
1400 Van Ness Avenue
San Francisco, CA 94109
DRE License # 01143973
[email protected]
Web site: www.loanmine.com
Blog: economy.typepad.com
(415) 244-9383
(866) 488-2051 fax
California Department of Real Estate - real estate broker license #01201643
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