Tuesday, October 28, 2008

New Home Sales in US vs Mortgage Rate

The so-called improvement on new home sales on september in US is vague: it is better than "consensus" value. But people overlook that the trend is still at the down side.

On the other hand, mortgage rates rising has started to pick up momentum again after the tiny drop last week. The worst is that despite the money injection and improvement on short-term liquidity availability, as shown on LIBOR easing, the long-term borrowing rates are rising. 5-year and 10-year AAA banking and finance rates reached 7.06% and 8.55% respectively.

Under such rates, enterprises can no longer afford any new developments requiring finance from outside. Anticipated profits will be lowered in alignment to the lowering of economic activities. It will further push down the equity market, and in turn worsen enterprises' liability position. Chain reaction will continue until the situation settles.

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