Another week, and another round of worse than expected economic news, that for the most part seems to be catching the economists, analysts, and any other so called experts by surprise. For months now we are told we are in a healing and growth period, yet there are more signs recently that have many investors concerned about the market.
The rumored announcement by China officials that the Chinese government is shutting down government lending for the remainder of January has many markets around the world in a panic. The Chinese market is showing signs of weakness and in this day of the existence of a world economy, problems in China would undoubtedly have an impact on world markets everywhere.
The Obama administration has proposed significant regulations to be placed on the nation's largest financial institutions. These proposed restrictions would limit any large financial institution in both size, and their ability to freely determine what they can invest in. The goal of such regulation is to prevent a repeat of the economic crisis we have just experienced. However, these same restrictions would cause banks to limit the amount of money they have to lend which would have a negative impact on economic recovery and growth.
Jobless claims hit a 2 month high last week exceeding analyst estimates by 42,000. Manufacturing dropped unexpectedly as well reversing the growth trend we have been seeing for many months.
The predominately weaker than expected economic news reports have been hammering the stock market with us seeing significant drops on Wednesday and Thursday. The bond market has been the benefactor of all this negative news as we have seen an almost ¼ point drop in mortgage rates in the last week.
In housing news, it was reported this week that housing starts dropped 4% which was much higher decline than expected, especially when experts were calling for an increase. On the bright side of housing, it was reported that new construction permits increased 10.9% which is a sign that builders are coming back into the market and that should hopefully translate into better housing numbers in the coming months. Only time will reveal the truth!!!
HUD has announced some sweeping changes to the FHA lending program. The changes will most certainly have a negative impact on a borrower's ability to qualify for FHA financing. The first change enacted and scheduled to go into effect on April 5, 2010 is the increase of the FHA Insurance Premium from 1.75% to 2.25%. Other changes being discussed but not yet formally announced are lower seller paid closing cost limits as well as higher down payments for lower credit scoring borrowers. It is expected in the next 30 days a number of announcements from HUD will be forthcoming on new policy and procedures regarding the FHA program. Stay tuned for more updates.
Economic news week scheduled for the week of January 25th:
• Monday January 25th - Existing Home Sales
• Tuesday January 26th - Case-Shiller Housing Price Index
• Tuesday January 26th - Consumer Confidence
• Wednesday January 27th - New Home Sales
• Thursday January 28th - Jobless Claims
Have a great weekend!
JJ Mack
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