6/25/09

Ah…the economy. New Home Sales fell .6% in May, which was somewhat unexpected. Year-over-year sales are down almost 33%. The Treasury auction went well, but the spotlight was on the Fed announcement, which, as expected left the overnight rates unchanged. Their statement indicated that the sensitive economy is in better shape than several months ago – that the “pace of economic contraction is slowing," What does that mean for mortgage rates, which we all know have shot up in the last month and threaten any kind of housing-based revival? Mortgage rates have followed Treasury rates, which have gone up given the supply in the market and also the psychology that the recession is near a bottom. More recently, rates have come down slightly but are still higher than where much of the public thinks they are (“What do you mean I can’t get a 30-yr mortgage at 4.75% with one point? My realtor said…”) Rates went higher yesterday afternoon, and traders remind us that it usually takes a day or two for the market to sort this out. Most expect choppy trading until next week.
This morning we’ve had Jobless Claims (unexpectedly up to the highest level since mid-May) and GDP (the U.S. economy contracted in the first quarter, capping the worst six-month stretch in more than 60 years). Both pieces of news are not good for the equity markets, but should be fine for rates. Let me know if you have any questions.