What a Difference One Month Makes

Let's go back four weeks. We are fresh off an increase in rates by the Federal Reserve Board and a Holiday Season. We are bracing ourselves for several rate increases in the coming year and a rise in rates on home loans. It took only one trading day for stocks to get our attention. Oil prices continued to move to levels we have not seen for close to a decade during our recession. World economic news made headlines as the stock market in China took a beating.

All of a sudden, rates are coming down as stocks suffer a correction, despite the Fed's activity. To explain all of this, we go back to two points we have made time and time again in our economic analysis. Number one, the Fed directly affects short-term rates, but does not control long-term rates directly. Certainly, there is an indirect effect on long-term rates resulting from the Fed's actions. Secondly, you can't predict the future, period. Even the Fed does not know what is going to happen.

We do know that if this news continues, the Fed's plan to continue to raise rates may be put on hold. There have been some bright spots. One bright spot has been job creation, though wage growth has been moderate. The other bright spot has been real estate. Soon we will see some news on both. The jobs report is released Friday, and shortly thereafter we will see if consumers are still purchasing homes while some of this turmoil is hitting the markets. It was a real interesting first month of the year, and we are just getting started.

Mike Ervin
NMLS # 282715
W.J. Bradley Mortgage
mike@mikeervin.com
www.mikeervin.com
(650) 451-7797
(650) 766-8500