A News recently hit the market stating that existing home sales slipped 0.2% in July to an annual rate of 5.75 million units, compared to an expected rate of 5.70 million. This was the slowest pace of home sales since November 2002. Existing home sales remain down 9.0% on the year.
The Financial markets are maintaining their expectations for a Fed rate cut in September. Fed funds futures traders are fully pricing in a 25 basis point rate cut in the target fed funds rate at the next FOMC meeting. A rate cut however is not a done deal. Its interesting to note that the effective fed funds rate has been between 4.5% and 5.0% since August 10, when the Fed increased liquidity in the banking system to help calm credit market fears. The question is, will the Fed wait for the effective rate to move higher before formalizing a cut in the target? Most analyses say the Fed is cutting the rate to stimulate the market.
There is news in the housing and the mortgage industry which Â were the main topics in speeches made by President Bush and Fed Chairman Ben Bernanke today. The Fed Chief, in remarks to an annual symposium in Jackson Hole today, said that current conditions in mortgage finance and the housing sector will be watched closely for the impact on the broader economy and that the Fed is prepared to take action if necessary. Any developments between now and the next FOMC meeting on September 18 can affect monetary policy. Shortly after the Fed Chairman’s speech, the President outlined a plan designed to help potentially hundreds of thousands of subprime borrowers avoid foreclosure. Working with the FHA, more refinancing options, lower down payments, higher loan limits and additional tax benefits were among some of the proposed administrative and legislative initiatives. The proposed changes could help many distressed homeowners keep their homes but will likely take several months to enact.