Talking Points Bulletin

My heart truly goes out to everyone who incurred a loss in the wildfires. I actually know someone whose family was awakened in the middle of the night and told to evacuate immediately. They lost their home, with no time to save anything. But, just like in the aftermath of the fires a few years ago, the disastrous situation reduces inventory and spawns activity in the housing market.

And the market is not as bleak as mainstream media would like people to think it is. It is the nature of journalism to sacrifice accuracy for sensationalism. I believe that we are at or very near the bottom of the downward spiral.

In five of the past six weeks, mortgage rates ended the week lower than before. Last week ended with 30-year fixed jumbo at 6.5%.

People who aren’t buying homes are renting them, and this increased demand is giving the rental market a boost. Rents in our market have increased 5.6% on average over last year. This pattern is likely to continue until the housing market shows a meaningful rebound, which will likely begin sometime in 2008.

The past week also brought the news that housing starts and new building permits plunged in September. Good. The supply of available homes needs to shrink in the face of lowered purchasing demand.

Mortgage rates have finally responded to the recent Fed rate cut. Last week ended with 30-year fixed jumbo at 6.625. Reports of inflation containment should allow rates to drift downward even further in the coming weeks.

Any attempt to explain the movement of our credit markets over the past few weeks seems impossible. Forward-looking indicators are suggesting that the pace of economic growth is cooling, but stock prices continue to rise and home loan rates cannot seem to respond to the recent drop in short-term rates. We ended last week unchanged, with 7% for a fixed-rate 30-year jumbo loan.

However, even as inflation stays in check, the Labor department upwardly revised its job gain report for 25,000. And it also astonished market-watchers by changing a 4,000-job loss in September to a gain of 89,000 jobs!

The only other econews of importance was reported by the National Association of Realtors: pending home sales index fell by more than 6% in August. No surprise there.

I have long believed that a Fed cut in interest rates would mark the bottom of the housing cycle, and a recovery would begin shortly thereafter. But it will take months before there is any hard data to show movement in the right direction.

The most important econews of the week was the modest year-over-year increase in the personal consumption index: 1.8% in August. It shows a continuation of the downward trek for that inflation measure, and it will give the Fed liberty to cut rates again.

The interest rate for a 30-year fixed jumbo loan closed at 7% on Friday, unchanged from the week before … despite the Fed’s recent ½% rate cut. It appears that the mortgage market is taking some time to respond.