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Fresh Commentary From Edward Erickson

Allied Mortgage Group

 

Well – here’s some good news…even if it doesn’t happen until the end of 2009!

 

Commentary: Sales of newly constructed single-family homes rose in September and standing inventory shrank as builders slashed prices to their lowest level in four years in an all-out effort to move properties. The annual sales pace was up 2.7% in September from the August figure. The median sales price of $218,400 was the lowest since the $211,600 level reached in September 2004 while inventories dropped to their lowest level since June of '04. The 7.3% decline in inventory from August was the sharpest month-over-month drop on record. Across the country sales strength varied widely with sales down 21.4% in the Northeast and 5.8% lower in the Mid-west -- while new home sales were up 22.7% in the West and higher by 0.7% in the South. Mortgage investors took a disinterested looked at the numbers since the tremendous amount of standing inventory yet to be worked off and current tight credit conditions suggest the bottom of the market in new home sales won't likely manifest itself until mid-2009 at the earliest.

Credit markets are just treading water this morning as market participants await what is expected to be a 50 basis-point rate cut from the members of the Federal Open Market Committee on Wednesday afternoon. Traders have priced in a 100% chance that Fed Chairman Bernanke and his fellow committee members will slash their benchmark fed fund rate to 1.0% in response to unprecedented turmoil in the financial markets. Normally, such prospects of easier money would lift investor sentiment -- but this time around 50 basis-points may not be enough as worries over the developing global recession temporarily trump otherwise "good" news from the Fed. Like a child throwing a tantrum - the markets don't seem to be satisfied with anything at the moment.

Rest assured there is a moment - somewhere before the end of the first quarter of 2009 in my opinion - that the $10 trillion dollars global central bankers have injected into the world economy will clearly have its intended effect. Improved business conditions and the attendant surge in employment will begin slowly before becoming readily apparent to even the most pessimistic observer. At this point in the cycle (first-quarter 2009) mortgage interest rates will probably be moving higher as the demand for capital to fuel resurrected economic growth accelerates. While the refinance boom that many hope to see may fall short of expectations - the flood of new purchase applications that will wash through the mortgage market as part of the budding economic recovery will likely more than offset the otherwise limited refinance opportunities. Granted, my crystal ball is pretty fuzzy looking that far out, but near-term indications presently support the longer-term view.