With the FOMC dust settled, a couple of points are worth mentioning.
First up, the FOMC made no mention of an exit strategy, instead talking about keeping Austin mortgage rates low for an extended period of time.
Number two was the statement about continuing the purchase of Treasuries and MBS and extending the period until the end of Q1, allowing for a wind down period. Seems obvious that they are more concerned about housing and the economy versus inflation and deficits. One reason for the accommodative policy may be the building inventory due to future delinquency and foreclosures, estimated to be 7 million units. This is what we call “shadow inventory”, not yet on the books but in the pipeline nonetheless. That number is huge, representing an entire year of sales. We shall see.
Speaking of housing, Existing Home Sales hit the tape down 2.7%, well below the expected plus 3.0% figure. 31% of the sales were distressed homes and 30% were first time home buyers. The 8K stimulus credit has helped to stabilize our industry. If it expires, chances are good that a “double dip” housing recession would be in the cards. We believe this gets worked out soon and extended through 2010.
Weekly Unemployment Claims were also released, falling 21k to 530K. Continuing Claims also dropped, off 123K from the previous week. Nothing huge here as the numbers were probably skewed by the Labor Day holiday.
Stocks seem to be looking over their shoulder, off 55 points on the big board. Seems like everyone expects consolidation due to a lack of fundamental reasons to own them at this level. We’re waiting to see who blinks first. Bonds, notes, and MBS are the benefactor of scared money running into safe haven investments (treasuries). As we speak, the 10 year note is up 8/32’s (yield 3.38%) and MBS up 4/32’s. For your reference, the 10 year note will need to close at 3.36% or below to extend the rally. That could be a tough order (without a stock market collapse).