Aaron Bruenger

Housing Starts for August rose better than expected and the highest level since last November - while Building Permits came in a bit shy of expected. All in all, a decent report, suggesting that while we are not out of the woods just yet, the worst in the housing market may have passed. Builders may be reluctant to further increase the supply of homes amid uncertainty over whether the Obama administration's $8,000 tax credit for first-time buyers will be extended beyond November, economists have said.

Homebuyers continue to have a good opportunity here. Historically low interest rates, the first-time homebuyer credit, and affordable home prices definitely make it an attractive time to buy a home. There's considerable uncertainty beyond the fall because the Federal Reserve at some point will stop buying mortgage-backed securities that have helped to keep rates low. Mortgage-Backed Securities (MBS) dictate long term home loan interest rates. When these bonds go up in value, home loan rates conversely go down.

Frank Nothaft, Freddie Mac vice president and chief economist was recently quoted saying "Interest rates for 30-year fixed-rate mortgages have averaged just above 5% through mid-September, which is roughly a percentage point below last year's average and suggests that 2009 may reach a record annual low since the survey began in 1971."

The clock is ticking for anyone looking to buy a home or refinance...

What do China, tires & chickens have in common? Sounds like the leadup to the hilarious punchline of joke right? Well, in this case it is not close to being funny. And how does any of this relate the mortgage industry? You will have to read on to find out...

You may have seen the headlines in past few days regarding President Obama ruling to impose a special tariff on Chinese tires, because many US tire workers have lost their jobs over the past few years due to Chinese tires gaining marketshare in the US. The new tariff is intended to slow the pace of sales of Chinese tires in the US, while shoring up the decline in union jobs. China has since responded by filing a complaint against the US with the World Trade Organization (WTO), citing protectionism. China is also now launching an investigation into imports of US chicken products and automotive products.

In addition to the threat of a trade war with China, the biggest concern for us is that China could unload some of their enormous amount of US security holdings. The majority of the treasury bonds that they hold are Mortgage Bonds (a.k.a. Mortgage Backed-Securities). China has been a huge purchaser of our Bonds, in order to buoy the US Dollar against their Chinese Yuan. The stronger Dollar exchange rate makes Chinese manufactured goods appear cheaper than US manufactured goods, and therefore gives them an outlet to grow their economy. The US does get a benefit from this, in that the Chinese purchases of our Bonds helps to keep home loan rates low - as China is such a large buyer.

If China slows or stops their US Bond purchases, it would cause rates in the US to move higher. And if they actually decide to start selling off their current US Bond holdings, it would exacerbate the problem. In the past, the possibility of this happening was seen as remote, because it would strain relations, and actually damage China's economy. But now with the bickering that appears to be going back and forth, even the talk and media discussion makes this be seen as more of a real threat.

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Wednesday the Fed statement came and went without much fanfare and the main reason is because the Federal Reserve didn't change rates or expand their Treasury Bond purchase program. Check out the Wall Street Journal breakdown of the Federal Reserve statement from June 24th. The one change in the statement from the prior month's was that the Fed now sees no risk of deflation. We see this as a nice was of of the Fed saying, "Now we are going to start looking at the real threat of inflation down the road." On the news, Mortgage Bonds (which dictate long-term home loan rates) finished the day unchanged.


We are frequently pinpointing reports that let us know that economy here in the Midwest isn't as bad as the news media reports we are bombarded with daily. A recent report from the local "East-West Gateway Council of Governments" confirms some recent national reports that the recession isn't hitting our local economy as bad as the rest of the country. Check out the full Overview of the Current Regional Economy.