Talking Points Bulletin

In the midst of all the economic doom and gloom we have been hearing, there was some great news this past week: The Census Bureau stated that household incomes are up for Orange County. But rents are also on the rise.

According to the Mortgage Bankers Association, there was a substantial increase in the number of new mortgage applications last week. Probably the result of a slight dip in interest rates, this increase speaks loudly for the underlying pent up demand for buying houses.

EVERYBODY thinks the Fed will cut interest rates when it meets this coming Tuesday. The only question is: ¼% or ½%? The week ended with 30-year fixed jumbo at 7%.

The credit markets sent a very strong message to the Federal Reserve on Friday after the employment report was released: LOWER INTEREST RATES NOW! The first week of September ended with conforming fixed rates down more than ¼%, at 6.875% for 30-year fixed jumbo.

The fuel that makes the housing market go is home loan interest rates. It would appear as though we are on the verge of getting some high-octane fuel in the upcoming weeks that may breathe some new life into the market.

Tired of hearing about the explosion of foreclosures? Last Friday the Mortgage Bankers Association gave us a very interesting fact: 92.4% of all mortgages in this country are being paid on time. You would never know that by the way mainstream media plays up the foreclosure story …

In spite of considerable financial market turbulence this past week, there was a nominal improvement in the delivery rate, the basis for most fixed rate home loans. The improvement in rates was actually slightly better than the delivery rate might have indicated.

Fed Chair Ben Bernanke said that the Fed is watching the housing market situation closely, along with the credit market crunch, and that it was prepared to act if the situation worsens.

July pre-owned home sales rose slightly. The inventory of unsold homes is also at a 16-year high. In spite of this, home prices actually inched up 1/10% comparing July 2007 to July 2006.

Perhaps the most important news of the week is that the personal consumption expenditure index (PCE) and its core rate is containing inflation. This needs to be in place for the Fed to justify a reduction in the Fed Funds rate. When that rate goes down, interest rates on home equity lines of credit and credit cards will decline.

Home loan rates will probably go down in the coming week, but it looks as thought the Fed will wait until the Open Market Committee meeting on September 18 to lower the Fed Funds rate.