It was bound to happen…It was inevitable. For well over a year the talk in the markets has been when is the Fed going to begin tapering the stimulus program?
As I am sure you have heard by now, the announcement finally came on Wednesday afternoon with the FOMC’s policy announcement and FOMC market forecast. It is official…the tapering will begin in January with a reduction of 10 billion dollars a month in bond purchases.
The reaction from the stock market was euphoria. On the news, the DOW rose 262 point in the second half of the trading day on Wednesday. The investor excitement stemmed from the upbeat forecast from the Fed on the expected growth of the economy. Good economic news and expectations means good news for stock values.
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While the sun shines in some parts of the world, it rains in others. The bond market on the Fed news tanked. The Fed stimulus program has been artificially keeping interest rates low. With the beginning of the tapering interest rates will rise. However, bond investors know that rising rates will erode the values of their bond holdings, which is why there was a flood of investors jumping out of the bond market once they heard the Fed plan.
Months ago, it was thought that higher interest rates would kill the economic recovery and push housing activity and growth back to a crawl. With the latest Fed report, the belief seems now that the economy and housing market are strong enough to sustain slightly higher interest rates.
The Fed tapering plan is going to be extremely gradual so any large jump in rates should be averted. Some experts are predicting that the whole tapering plan will take at least a couple of years before it is completely terminated. Remember, the last thing the Fed wants to do is cut support for economic growth too quickly as that would have a devastating effect on the economy.
The Housing Market Index, which measures home builder sentiment on future housing growth, shot back up 4 points. Currently the index is at the highest point it has been since the economic recovery began and it ends a 3-month trend of declines in the index.
On the flip side, existing home sales fell a sharp 4.3% for the month of November. This is the fourth straight month of disappointment.
The negative report is not due to a lack of buyers or the inability for them to obtain mortgage financing. The decline is primarily because there are just not enough homes on the market for sale. The worst part of the report is that existing home sales are actually 1.2% below where they were a year ago.
This is the first time since the beginning of the recovery that we have seen contraction in sales from the prior year. Higher mortgage rates may be a small contributing factor to the decline as well.
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KNOW YOUR OWN STATE MOTTO
Oregon – Spotted Owl… It’s What’s For Dinner
Pennsylvania – Cook With Coal
Rhode Island – We’re Not REALLY An Island
South Carolina – Remember The Civil War? Well, We Didn’t Actually Surrender, Yet!
South Dakota – Closer Than North Dakota
Tennessee – Home of the Al Gore Invention Museum
Texas – Federal Government? What Federal Government? We Don’t Need No Stinkin’ Government!
Vermont – Too liberal for the Kennedys
Virginia – Who Says Government Stiffs And Slackjaw Yokels Don’t Mix?
Washington – Our Governor can out-fraud your Governor!
West Virginia – One Big Happy Family…Really!
Wisconsin – Come Cut the Cheese! Come Smell Our Dairy Air (you need to say it out loud to really “get it”)
Washington D.C. – The Work-Free Drug Place
Next week’s market moving reports are:
- Monday December 23rd – Consumer Sentiment
- Tuesday December 24th -Durable Goods Orders, FHFA House Price Index & New Home Sales
- Wednesday December 25th – Christmas Day 2013 Markets Closed
- Thursday December 26th – First Time Jobless Claims and MBA Purchase Applications
As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate information. I welcome the opportunity to serve you in any way I possibly can (661) 505-4300.
Source: Santa Clarita News