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July 22, 1988
FHA discounts were unchanged this past week, and conventionals rose only a little despite news of continuing economic growth. The bond market is up a little this morning in response to a .3% rise in the Consumer Price Index, which was slightly less than expected.
The growth is not explosive, just steady, and inflationary potential (it's not even pressure, yet) is being built one step at a time. Industrial Capacity Utilization rose .2% to 83.1%, close to a level which the Fed will feel is dangerous; Housing Starts rose 5.1% in June, and Housing Permits rose 3.7%.
The data to watch out for next week is Wednesday morning's initial estimate for second quarter Gross National Product. This "flash" estimate is prone to large revision in the weeks to come, but is a very important piece of data to the Fed, and the credit markets will respond strongly to any surprises. Growth of less than 2% will move rates down, and more than 3% will move rates up.
I reported on Greenspan's testimony last week, and so far the Fed appears to be acting as advertised: no overt tightening, but leaning to the tight side. The Fed has been draining reserves from the banking system, but not driving rates up. The Fed wants a recession, but just a little one.
If we get bad economic numbers (meaning high growth numbers), or Fed Funds trade at 8% or above for two days in a row, the Fed has tightened again. Mortgage rates are near their highs for the year; if we don't go through the highs, rates will come down for a while.
The real estate market continues to show good signs in Colorado. The last cavein has about run its course in Colorado Springs (note the Affiliated Bankshares writeoff this week), and new loan delinquencies are down a lot at all the lenders I've talked to. The foreclosure surge in Denver I believe to be a lagging indicator, as many of the deals were in trouble a long time ago. It is delightful to see yellow equipment moving dirt on the Beta West site in Boulder.
Lock 'em if you got 'em, at least until we get Wednesday's data.
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