(Headlines - scroll down for full stories)
1. Fed's Inflation Indicator Flashing
2. Foreclosure Rates Soar: Housing Bust Warning
3. Mortgage Rates Reach 4-Year High
4. Tres. Sec. Snow Set to Resign
1. Fed's Inflation Indicator Flashing
The Federal Reserve's key inflation indicator rose above its target level in April. The latest data also shows that incomes are rising and spending is accelerating.
The core personal consumption expenditures (PCE), which exclude food and energy prices, crept up 0.2%, bringing the annual pace of inflation to 2.1%, according to a release from the Commerce Department. The Fed says its comfort zone for this gauge is 1 to 2%.
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Wall Street played down the impact of the core PCE's rise as stocks moved cautiously higher in early trading, but it certainly could foreshadow another interest rate hike by the Fed.
"These personal consumption, saving and inflation data add weight to the argument that GDP growth is still strong enough and inflation is still threatening enough to cause the Fed to raise interest rates further," Peter Morici, a professor at the University of Maryland School of Business, told The Wall Street Journal.
But Joshua Shapiro, chief economist at MFR Inc., processed the data differently.
"Recent results are within [the Fed's] comfort range, albeit very near the upper limit," he commented to the Journal. "All in all, these data are consistent with our view that the FOMC will pause at its upcoming June 28/29 meeting in order to further assess the economic landscape."
In recent weeks, Wall Street has been spooked by inflation concerns. Today, however, it seems to be business as usual.
Personal income and spending also picked up in April. Personal income has had two consecutive months of 0.5% gains, according to revised numbers from Commerce. Spending rose 0.6% in April after rising 0.5% in March.
However, the two numbers came in below economist estimates.
The Wall Street Journal says that 23 economists surveyed by Dow Jones Newswires and CNBC expected a 0.7% increase for both incomes and spending.
Disposable personal income, which is income after taxes, rose by 0.4%, but when adjusted for inflation, disposable income dropped 0.1%. Personal saving as a percentage of disposable personal income was at a negative 1.6%.
Editor'sNote:
- Inflation is even higher than the government reports. To read more about the government's manipulation of inflation data, check out our report, "The Inflation Lie." Go here now.
2. Foreclosure Rates Soar: Housing Bust Warning
Which big cities have the most foreclosures?
According to RealtyTrac, which ranks the top 100 metropolitan areas in the U.S., it's Indianapolis, Atlanta and Dallas.
Experts believe foreclosures are soaring because one-fourth of all existing mortgages are ARMs - adjustable-rate mortgages - and recent interest rate hikes are creating huge spikes in mortgage bills. (See next story).
RealtyTrac reports that cities in the Sun Belt and Rust Belt generally had the highest foreclosure rates in the first quarter of 2006, while Northeast and Gulf Coast cities had some of the lowest rates.
"Indianapolis narrowly edged out Atlanta as the city with the highest
foreclosure rate in Q1," said James J. Saccacio, chief executive officer of
the company.
Saccacio cites cities with above-average unemployment rates and below-average home price appreciation as a cocktail for home foreclosures. He also points to decreasing affordability, rising interest rates and speculative buying as reasons that homeowners default.
"Because of the high home prices in many areas, more home buyers have
stretched themselves financially with creative and often risky financing
that involves adjustable interest rates, interest only and negative
amortization loans," Saccacio said.
"Home buyers with these types of loans are more susceptible to default and foreclosure when interest rates move higher."
| Top 10 Metro Foreclosure Rates |
| Metro Area |
% of households in foreclosure |
1 foreclosure for ever # households |
| Indianapolis |
1.45 |
69 |
| Atlanta |
1.42 |
70 |
| Dallas |
1.01 |
99 |
| Memphis, Tenn. |
0.99 |
101 |
| Denver |
0.95 |
105 |
| Detroit |
0.83 |
120 |
| Jacksonville, Fla. |
0.75 |
133 |
| San Antonio |
0.75 |
133 |
| Canton, Ohio |
0.72 |
140 |
| Las Vegas |
0.71 |
Editor's Note:
- Sir John Templeton was right. A housing bust is imminent. Templeton first warned housing prices could crash 50%. Find out what he said and learn how to protect yourself and even profit from the coming storm. Go here now.
3. Mortgage Rates Reach 4-Year High
Long-term mortgage rates hit a new four-year high this week, according to Freddie Mac.
The average 30-year fixed mortgage rate was 6.62% last week, up from 6.60% the previous week. The last time the 30-year mortgage rate was that high was when it was at 6.63% in June 2002.
A year ago, 30-year mortgage rates averaged 5.65%, 97 basis points lower than the current average.
Rates on 15-year fixed rate mortgages, largely used when refinancing a home, averaged 6.23%, from 6.20% last week. One year ago, the 15-year mortgage was 5.21%.
Rates on adjustable-rate loans - which became increasingly popular over the past few years as home prices skyrocketed - fell slightly compared to a week ago.
The five-year adjustable-rate mortgage averaged 6.21% this week, down from 6.23% last week. Last year, the five-year ARM rate was 5.07%.
One-year ARM rates inched down to 5.61% from 5.62% a week ago. A year ago, the cost of a one-year ARM was just 4.21%.
Frank Nothaft, Freddie Mac vice president and chief economist, points out that yesterday's GDP data shows that the housing industry accounted for 7% of GDP, compared to 19% in the fourth quarter of 2005.
Clearly, rising mortgage rates are cutting into the housing industry.
As home prices rose in the past couple of years, borrowers turned to adjustable-rate mortgages to lower their monthly payments. But, as adjustable-rate mortgages rates have increased, real estate has become less affordable.
As a result, existing home sales showed a 2% decline in home purchases in April. Home prices posted their slowest increase in four-and-a-half years.
Editor's Note:
- Real estate expert and Yale professor Dr. Robert Shiller says that housing prices nationwide could fall by as much as 40% in real dollars over the next few years. In this exclusive interview, find out how the five ways to protect yourself and profit from the coming real estate crisis. Go here now.
4. Tres. Sec. Snow Set to Resign
Treasury Secretary John Snow is planning to resign from his post in the Bush administration some time in the middle of June, according to numerous reports.
As reported in MoneyNews at the end of March, Snow has been under pressure to quit. Recently appointed White House Chief of Staff Joshua Bolten wanted the position filled by "someone who can more forcefully communicate the administration's message that the economy is strong," The New York Times said at the time.
Snow's "strong dollar" policy has flown in the face of the Bush administration's desire to let the dollar fall. In fact, at times the policy looks like all talk and no action, MoneyNews reported.
Many assert that the only reason Snow has stayed on this long is that a replacement has been impossible to find, as many desirable candidates have refused the position.
According to The Washington Post, Snow has been "genial and outgoing and more comfortable as a salesman for policies devised at the White House. [Snow's predecessor] O'Neill visibly chafed in the role of spokesman for policy prescriptions set by others.
"Snow never roiled financial markets like O'Neill did with offhand remarks about currency policy. Unlike O'Neill, he enthusiastically backs the tax cuts passed in 2003."
Among possible candidates being mentioned to replace Snow are David Mulford, present U.S. ambassador to India, former Commerce Secretary Don Evans and Steve Friedman, who used to head up President Bush's Economic Council.
Only time will tell what effect Snow's departure will have on the dollar and the overall U.S. economy.
Editor's Note:
- Warren Buffett, the world's second-richest man, is so convinced the dollar will decline in 2006 that he's placed a $16.5 billion bet on it. Find out how you can get in on it. Go here now.
Editor's Notes:
- Inflation is even higher than the government reports. To read more about the government's manipulation of inflation data, check out our report, "The Inflation Lie." Go here now.
- Sir John Templeton was right. A housing bust is imminent. Templeton first warned housing prices could crash 50%. Find out what he said and learn how to protect yourself and even profit from the coming storm. Go here now.
- Real estate expert and Yale professor Dr. Robert Shiller says that housing prices nationwide could fall by as much as 40% in real dollars over the next few years. In this exclusive interview, find out how the five ways to protect yourself and profit from the coming real estate crisis. Go here now.
- Warren Buffett, the world's second-richest man, is so convinced the dollar will decline in 2006 that he's placed a $16.5 billion bet on it. Find out how you can get in on it. Go here now.
- Silent infections and "sleeper germs" may be the hidden culprit behind the chronic diseases that eventually kill most of us - and our loved ones. Go here now.
