• Storm CloudI was watching the local news today (as I have been known to occasionally do) and they seemed intent on drilling the frightful idea of $4.00/gallon gas into our heads.  It seems that newscasters don’t take very long to get on my inflationary bandwagon and start trying to freak everyone out.

    These concerns are coming on the back of crude oil hitting $100/barrel again, a level that was once looked on as a market novelty.  Now, economists are divided on whether oil will recede or move to all new high levels.

    But Greg, you work in mortgages.  Why are you telling us about oil?

    Because it brings this whole economic debacle home.  Every business needs gas in some way, shape or form.  Individual consumers need it to.  High gas prices mean product prices go up (inflation) and consumer spending goes down (slowing GDP growth).  This is another (major) indicator of the slowdown that is upon us.  I could quote you plenty of dismal economic numbers that have come in lately.  New housing permits reached it’s lowest level since 1991.  The Philadel­phia Business Index recently hit it’s lowest level since 2001.  The Consumer Price Index, a good indicator of inflation, continues to tick upwards, undermining the Fed’s recent soothing rhetoric of “inflation is expected to moderate in the coming quarters”.  Every indicator is dancing along the dividing line between recession and business as normal.  Essentially, whenever a new number comes out, you can expect the news to refer to it as follows: “The _______ index has come in at it’s worst level in ______ years, and it raises concerns about a recession.”

    Things are slowing down.  No surprise there.  Every number that comes out will stink to high heck.  Just get over it.  Everyone on your television screen that is screaming in panic is doing so to increase viewer ratings (not because there is necessarily any reason to panic).  About the only good news you’ll hear about is that the lenders associated with the Hope Now Coalition have offi­cially instated a 30-day freeze period for foreclosures, giving borrowers ample time to re-negotiate loan terms.  So, those that are hurting the worst are at least being targeted with relief efforts.

    We are in the middle of a market tremor.  Fixed rates on mortgages shot up over half a point in the past two weeks because of a huge sell-off in mortgage-backed securities.  However, the past cou­ple of days have shown that rates seem to have hit a ceiling around 6.00 on fixed rate mortgages and they are coming back down slowly but surely.  Additionally, adjustable rate mortgages (which are in fact NOT the tool of the devil) are sinking to very attractive prices.  Some people are having a hard time securing financing, but most people are still getting the loans they need.  Loan guide­lines are tight, as well they should be.  This environment all but forces the consumer to improve their credit-worthiness and live within their means.

    And that is exactly what America needs right now. 

    I said it before and I’ll say it again: Greenspan’s decision to leave the Fed Funds Rate down at 1% for so long in ’03-’04 made this economic backlash inevitable.  However, the world isn’t coming to an end.  In fact, this whole slump is happening at a very manageable and palatable pace. If we can skate through this downturn in a shallow and drawn-out manner (as opposed to a sharp and sudden drop across the board) then I think we should consider ourselves lucky.

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