Well, here we are on the morning many people thought would never come. Many people said they never expected that GM would actually go under. Well, under they are with approximately $178 Billion in liabilities and only $82 Billion in assets (and I think the $82 Billion includes the money that you and I gave them.)
So what difference does that make for the mortgage market? A couple of things:
- It’s not a positive thing for the housing market because it “solidifies” what we all knew anyway. There are going to be additional job losses and as we all know, additional job losses equates to additional mortgage delinquencies and housing losses which is bad for the mortgage backed securities market.
- I don’t know the exact amount but there is a LOT of money out there in GM bonds. Those bonds are now essentially worthless (from what I understand, they were “exchanged” for stock – stock that’s currently trading at 75 cents per share). This is spooking the entire bond market and pushing rates higher.
- The government announced that as the “only one who would lend to GM right now” (not exactly what they said, but close) they are putting an additional $30,000,000,000 into GM. This makes the GM bailout the largest individual company bailout and increases the risk by the government going further in debt thereby pushing up on rates.
So, GM, the one company that was supposedly too big to fail, failed and failing isn’t a good thing for the mortgage rate market.
What else is happening?
- The ISM (Industrial Supply Management Index) showed that manufacturing is still contracting but once again it’s the “less bad” type of thing. It was slowing but not as rapidly in May as it did in April.
- Personal income rose and personal spending fell in May. That means that we all made a little bit more and guess what, we didn’t go out and spend it! For the long term health of the market, this is actually a good thing that we aren’t “over consuming” but short term, it’s quite painful because so much of our economy is based on consumers spending and spending and spending…..
So where does that leave rates?
A little bit higher than we were on Friday.
Recommendation:
Lock all loans. Plain and simple, the market is moving against lower rates and until we get either:
- A Major stock market correction
- A major (and believable – that’s the hard part) government intervention
- A convincing sign that the Chinese aren’t concerned about the amount of debt our government is raising. (Operative word is convincing)
- A sign that deflation is running rampant and there is no risk of inflation any time in the next few years.
Until at least one of those happens, we’re going to be fighting a losing battle in terms of getting rates down.
Stay tuned,
Tom Vanderwell
Mark Green says:
Tom, I’ve purposely been avoiding the day-to-day when it comes to GM because I’m opposed to giving them any bailout funds whatsoever.
Is the ultimate plan to reorganize? What happens to all the pension $ GM has promised to its retirees over the years?
June 1, 2009 — 10:31 am
Anonymous says:
we’re going to be fighting a losing battle in terms of getting rates down.
It’s all over except for the beheadings of the losers (us all).
June 1, 2009 — 11:07 am
Tom Vanderwell says:
Mark,
The ultimate plan, in a perfect world, is for them to reorganize and emerge smaller, smarter, more cost effective and with less debts and less pension obligations.
The reality? Do you think that the current administration is going to “stick it” to the UAW retirees? Nope, they’re an equal opportunity bailout government. We all get to pay for it, including our kids and grandkids.
We crossed a dangerous line and are now sliding down a slippery slope that is going to take us a long time to climb back up.
Tom
June 1, 2009 — 11:26 am
Joe says:
The U.S. economy is sick. These bailouts and other government interventions will only worsen our country’s economic health. I wonder how long our credit rating will hold out.
June 1, 2009 — 1:37 pm
Joe says:
The U.S. economy is sick. These bailouts and other government interventions will only worsen our country’s economic health. I wonder when how long our credit rating will hold out.
June 1, 2009 — 1:40 pm
James Boyer says:
I would tend to bet that something is going to happen to drive interest rates back down. The economy has not recovered, and higher interest rates are not warranted currently by the imminent threat of inflation. Now if the people buying all that debt don’t want so much of it anymore well, there will just have to be another way.
As to the GM bailout, well considering how much the US government and the banking industry contributed to this problem, I feel it is only right to bail them out since without the debt and the highly burdensome health care obligations, they are a fairly competitive company already. Other then that, they need to make sure they never ever allow accountants to decide what products to build, or to run the company. Mr. Smith from accounting was the start of the bankruptcy at GM, the banking industry was just the death nail.
Just as a side note, it has been crazy busy in the real estate business here in Northern New Jersey for the past few months now.
June 1, 2009 — 1:41 pm
Mark Green says:
>>Other then that, they need to make sure they never ever allow accountants to decide what products to build, or to run the company. Mr. Smith from accounting was the start of the bankruptcy at GM, the banking industry was just the death nail.
James, I’ve despised GM since I watched “Who Killed the Electric Car”. If their bean counting management led them down this path, I say let ’em die.
GM went for the short term money by pimpin’ Hummers and other gas guzzlers in the face of $4 gas – when in fact they had the first mover advantage on alternative fuel cars in this country. Whoever at GM was to blame, I still feel like we ought to let them take the dirt nap. Quite frankly, they deserve it. Just one man’s opinion.
June 1, 2009 — 8:01 pm