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Pimco's Take On Rates

Posted by: Chris Palmeri on September 21, 2006

Pimco the big bond fund manager is very focused on interest rates. They mean all the difference in the bond world. Lately the firm has also been watching the housing markets. If housing markets crash, it could mean that the Federal Reserve needs to lower rates again. But Pimco’s chief Fed-watcher, Paul McCaulley, doesn’t think that’s happening any time soon. In a recent note to investors, McCaulley describes the new home builder industry (companies like KB Home and Lennar) as being in a recession. In the existing home market (85% of home sales are existing homes) McCaulley sees rising inventory and more layoffs of folks in the “closing costs” side of the industry—Realtors, mortgage brokers and the like. For this reason Pimco is taking its estimate of Gross Domestic Product growth down from as high as 3.25% earlier this year to about 2.25% today. McCaulley doesn’t think that’s enough of a slowdown for the Fed to start lowering rates again. So the Pimco rate forecast is flat, not rising, interest rates.



BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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