Registered Investment Adviser Caleb Lawrence
A volatile early session was capped by the Fed’s latest decision on interest rates. As was widely expected the Fed left rates unchanged but also went on to announce not only the end of Quantitative Easing or QE but that the Fed would begin to reduce its bloated balance sheet. Given that central bank purchases of securities have propped up markets worldwide and been instrumental in blowing destabilizing asset bubbles everywhere you look, a reversal of this policy is highly likely to put significant pressure on various asset prices even if done gradually. Additionally, with corporate buybacks also on the wane demand for equites should taper noticeably. The end of QE finishes what is an acknowledged failure in unconventional monetary policy tried nearly worldwide in the post crisis period since 2007 as inflation has struggled to remain above 2% as has economic growth or Gross Domestic Product.
Mortgage activity slipped 9.7% last week as purchase apps fell 10.8% and refi activity dropped 8.5%. The 30-year contract rate on a Jumbo loan slipped fractionally to 3.99%
Existing home sales missed expectations substantially in August falling for a 3rd consecutive month down 1.7% to 5.35 million units annualized. Month’s supply was unchanged at 4.2, the median price slipped 1.8% to $253,500. Sales were particularly weak in the South and West. Once again, the pundits blamed a lack of supply for the sales miss. Supply has been very tight for quite some time now and in fact was just 3.5 months’ in January when sales came in at 5.69 million units annualized, so I don’t think the lack of supply rational holds up.