Real Estate - Interest Rates Move Up!

READY…SET…HIKE! Fed Day came and went without much fanfare. Chairman Greenspan and his inflation-fighting friends at the Fed decided to hike up the Fed Funds Rate by another .25%, although the decision was not unanimous. More importantly, the commentary was fairly tame with no shockers for the market to absorb. Greenspan said that although the aftermath of Hurricane Katrina will be highly costly and inflationary, the long-term look at the economy shows that inflation is still “contained”. Sounds like you can bank on a few more hikes before Uncle Al turns over the keys to his successor…likely to be Fed Governor Ben Bernanke.
Although Mortgage Bonds and home loan rates had a bit of improvement early in the week, Friday saw them worsen right back to where they started as China announced they would allow further floating of their currency, the Yuan, against the US Dollar. Why? A few months back, China announced that they would no longer peg the Yuan to the US Dollar, and would instead allow it to float within a “limited range”. The breaking news that China will allow the Yuan to float even further from the Dollar means that China does not have to purchase as many US denominated securities – like Bonds – to keep the US Dollar at higher levels, which would in turn keep the Chinese Yuan stronger. Less buying is always bad news for prices…so Bonds and home loan rates took a turn for the worse on the news.
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