Weekly Economic Commentary courtesy of Richard Uhl, Vice President, Real Estate Loan Manager, First Interstate Bank, Jackson Wyoming

“IF A WINDOW OF OPPORTUNITY APPEARS, DON’T PULL DOWN THE SHADE.” – Tom Peter

The Fed saw their regularly scheduled meeting as a window of opportunity to make a blockbuster announcement:  over the course of 2009, they will purchase an additional $750 billion of Mortgage Backed Securities (MBS), as well as $300 billion in long-term Treasuries, primarily to help shore up the housing market and keep Home Loan Rates low.  Result….bonds exploded higher, but Home Loan Rates did not drop as dramatically.  Why?  Two reasons….one, the Fed is currently targeting a portion of the securities market that is keeping rates in the 5.00% range and two, mortgage volumes are so high (lenders and investors are working at maximum capacity) that the improvements to Bond pricing are not necessarily being passed through to the Home Loan Rate sheet (note:  there is also still concern for future inflation).

Good news: Housing Starts for February came in better than expected and actually increased for the first time in eight months.  Fed Chairman Bernanke stated the recession should end in 2009, and he is confident of the long-term outlook for the US economy.  An update on Mark-to-Market (the accounting rule which has had a devastating impact on the financial markets), the Financial Accounting Standards Board (FASB) will propose to allow companies to use more “leeway” in applying the accounting rules they use to value their assets.  Result…better first-quarter financial statements for companies, stocks have been moving higher lately in the hopes that Mark-to-Market will be fixed.

Existing Home Sales came in stronger than expected at a 4.72 million pace, versus prior estimates of 4.45 million (inventory rose slightly from a 9.6 month supply to a 9.7 month supply).  Last week China was saying they were concerned over the value of Treasuries but today top Chinese officials had a change of heart and said they will continue to purchase our debt, strengthening our dollar.  Treasury Secretary Geithner unveiled the Public Private Investment Program, a private investment fund designed to remove toxic assets from financial institutions.  Again, he is being knocked for not providing details of the plan….more specifically, how to price the assets being purchased by the government.

New Home Sales will come out on Wednesday and Durable Goods Orders (cars, furniture, appliances, etc.), an important indicator of economic activity.  The final figures for 4th quarter 2008 Gross Domestic Product (GDP) will be out on Thursday and Friday will bring the Fed’s favorite gauge of inflation: Core Personal Consumption Expenditure (PCE) Index.  It will be interesting to see what these reports show regarding potential inflation ahead.

New Wheels – The average price of a new vehicle purchased in the USA has declined 2.3% over the last 12 months (source: Department of Labor)