“It all depends on how we look at things.” Those words by Carl Jung describe the importance of perspective… which is exactly what last week’s economic reports on home sales require! Existing Home Sales were reported well below expectations and a significant 27% decline from last month. As you can see in the chart below, New Home Sales were also ugly - coming in well below expectations and at the lowest reading on record. But as Carl Jung said, let’s take a step back and gain a wider perspective about how we look at those reports… and what they mean!With all due respect, the actions from the Washington academics are invariably filled with unintended negative consequences. The First Time Homebuyer Tax Credit is a good example. It’s now clear that the tax credit has done more harm than good…all at an enormous cost to those who pay taxes. Here’s why: The tax credit simply rewarded those who were already going to purchase homes, as well as those who moved up the timing of an inevitable purchase. But now… the “sugar rush” is over, and the void remains. Worse yet, potential buyers are feeling reticent to make a move after “missing out” on the free money. The obvious problem that remains within our faltering economy is the job market. Yet the focus from Washington has been elsewhere. And it can be argued that each landmark passage of reforms - from aviation to healthcare to financial - has made job creations more challenging.
But eventually we expect some better decisions to come out of Washington. This, along with time, will help the housing market and overall economy recover - making for a good long-term buying opportunity in today’s market. Remember, the best investors buy during the most pessimistic times.
To highlight this - as well as give us better perspective and some hope towards the future - here’s something that was recently pointed out by Dennis Gartman, a well-respected market analyst. Back in 1992, an article in Time Magazine included this passage:
“The US economy remains almost comatose. The slump already ranks as the longest period of sustained weakness since the Depression. The economy is staggering under many ‘structural’ burdens, as opposed to familiar ‘cyclical’ problems. The structural faults represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought, the debt hangover, the banking collapse, the real estate depression, the health care cost explosion and the runaway federal deficit.”
It’s amazing how eerily similar the picture from 1992 compares to today. We all know that the period following 1992 included terrific growth and opportunities in the economy, stock market and housing. If history repeats itself, which it often does, this could point to much better days in the future with opportunities in the present.
———————– New Home Sales Hit a Record Low in July 2010
Speaking of revisiting the past… back in 1985, the Kansas City Royals faced the St. Louis Cardinals in the World Series. This was known as the “I-70 Showdown” World Series, as I-70 is the route that connects both cities, and the road along which fans traveled between both stadiums. Lately, there’s been another I-70 Showdown, between Kansas City Fed President Thomas Hoenig and St. Louis Fed President James Bullard. And interestingly enough, both Fed Presidents spoke at the ongoing Jackson Hole Symposium, which was hosted last week by the Kansas City Fed. Hoenig kicked off things with his opening speech Thursday night. While he has clearly been the most vocal Fed inflation hawk - calling for an increase in the Fed Funds Rate to at least 1% ASAP to prevent future inflation - his opening remarks were mellow.
The next morning, it was St. Louis Fed President Bullard’s turn at the plate. While Bullard has been quite the inflation dove of late - calling for the Fed to do more to prevent deflation - his remarks were rather surprising. He stated that he doesn’t see a double dip recession, despite the economy being a bit softer. He further commented that he expects reasonable growth during the second half of this year and for the economy to be back on track during 2011. Those are pretty positive comments from a man who actually went right from stage to an appearance on CNBC, where he went on to state his most surprising comment, which was that the Fed has done as much as they will do for the Mortgage Backed Securities (MBS) market.
The main event came when Fed Chair Ben Bernanke was up. In his comments Friday morning, he appeared to dismiss the deflation scenario, stating it wasn’t much of a risk as the Fed has the tools to combat deflation. Those tools include more purchases of longer-term securities - and when you take this comment along with what Bullard said previously about MBS, it looks like the Fed may lean their purchases towards longer term Treasuries. This incestuous relationship between the Fed and the Treasury gives the US a license to print money at low rates, which will almost certainly end with an inflation problem down the road.
Another tool would be lowering the interest paid on excess reserves, which may influence banks to lend out that money; however, much like pushing on a string, this has been difficult to do.
A final tool would be signaling that the Fed will keep short-term interest rates close to zero for longer than what the market currently expects, or for an “extended period.” Some are looking for the Fed to give clarity as to when they’ll look to raise rates, such as an unemployment rate that dips to “x” level. But the Fed does not appear to want to be handcuffed to such a trigger, as economic circumstances contain so many moving parts.
LOOKING FORWARD TO THIS COMING WEEKEND, THE LABOR DAY HOLIDAY IS ALREADY UPON US. THAT MEANS SUMMER IS QUICKLY COMING TO AN END, BUT THERE’S STILL TIME TO TAKE A WELL-DESERVED, LAST-MINUTE VACATION. CHECK OUT THE MORTGAGE MARKET GUIDE VIEW BELOW FOR TRAVEL TIPS THAT CAN HELP YOU GET AWAY YET THIS SUMMER.
Forecast for the Week
This week, we’ll get a read on the consumer perspective of the economy, with reports on Personal Incomeand Personal SpendingMonday as well as the Personal Consumption Expenditure (PCE) Index, which is the Fed’s favorite gauge of inflation. Those reports will be followed by a report on Consumer Confidenceon Tuesday.
Manufacturing will also be in the news Tuesday with the Chicago PMI, which surveys more than 200 Chicago purchasing managers about the manufacturing industry and is a good indicator of overall economic activity. The ISM Indexis due out the day after that. This is the king of all manufacturing indices and is considered the single best snapshot of the factory sector.
We’ll also see the first employment report of the week on Wednesday morning with the ADP National Employment Report, which comes just a day before the Initial Jobless Claimsreport on Thursday. Initial Jobless Claims fell 31,000 in the latest week to 473,000, below the expected 485,000. And while that is still bad, at least for one week it broke a bad trend of consecutively higher readings.
But the big news of the week is expected on Friday, when the Labor Department releases the official Jobs Reportfor August. With so much of the economy in a holding pattern because of unemployment concerns, the markets will definitely be paying attention to this report. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.As you can see from the chart below, Mortgage Bonds weren’t able to close above resistance last week.
Overall, Bonds and home loan rates ended the week near where they began, which is at historically great levels for homebuyers or homeowners looking to refinance. If you’re curious how you or someone you know can benefit from these levels, please contact me today to discuss your unique situation.———————– Chart: Fannie Mae 3.5% Mortgage Bond (Friday, August 27, 2010)
Have a great week and let us know when we can be of help. — abe
“There is nothing wrong with change, if it is in the right direction.” Winston Churchill. And certainly, seeing our economy improve is change in the right direction. But what steps will get us there… and how will those steps impact home loan rates. Here’s what you need to know.
Last Tuesday, the government held a “Future of Housing Finance” conference to discuss changes needed in this area. Most participants agreed that government assistance for housing must be reduced but not eliminated. Bill Gross, from PIMCO and one of the panelists, called for a massive refinancing of certain mortgages backed by Fannie/Freddie/FHA, believing such a move would lift home prices 5% to 10% and provide a $50 Billion stimulus to the economy. I will be watching this situation closely for further developments.
Home sales and the job market - two key aspects to our continued recovery - are also areas we need to see change in an improving direction. Last week, the NAHB Housing Market Index came in a bit worse than expectations and showed housing to be at a 17-month low. It can be argued that the tax credits actually hurt the housing market by not adding any sales, just pushing them up. This has now resulted in a void or softer period in the market, potentially wasting billions of dollars. Housing Starts and Building Permits were also reported lower than expected last week. Clearly, demand for housing has slowed over the past few months, due to the expiration of the Home Buyer Tax Credit and persistently high unemployment.
Speaking of unemployment, awful is the only way to describe last week’s Initial Jobless Claims report. According to the report, 500,000 people filed to receive unemployment benefits for the first time, which was well higher than the lofty 475,000 expected and the highest reading since November 2009. In addition, between Continuing Claims and people receiving Emergency Unemployment Compensation or EUC, the combined total of people receiving unemployment benefits now equals 9.25 Million people.
The bottom line is this: The labor market is the foundation of our economy. Job growth and confidence is the best and most sustainable way for our economy to recover. The present anti-business regulatory environment is pushing Initial Claims, a leading indicator on the health of the labor market, in the wrong direction.
But home loan rates, meanwhile, continue to remain at historic low levels. Though keep in mind, inflation is the arch enemy of Bonds and home loan rates, which means it can cause both to worsen. Both the Producer Price Index (which measures inflation at the wholesale level) and the Consumer Price Index were recently reported hotter than expected. If rates do start to rise, they will likely do so quickly. If you or anyone you know would like to learn more about taking advantage of historically low home loan rates, please don’t hesitate to call or email. Or forward this newsletter on to anyone you think may benefit and I’d be happy to talk to them free of charge. WHEN YOU’RE BUYING A HOUSE, THE LAST THING YOU WANT IS AN UNSUCCESSFUL CLOSING. CHECK OUT THE MORTGAGE MARKET GUIDE VIEW FOR SOME INFORMATION THAT WILL HELP ENSURE YOUR HOMEBUYING EXPERIENCE MOVES IN THE RIGHT DIRECTION.
Forecast for the Week
More housing and job news follows this week, but will there be change in an improving direction? We’ll find out with Tuesday’s Existing Home Sales Report, Wednesday’s New Home Sales Report, and Thursday’s Initial and Continuing Jobless Claims Report.
Also, on Wednesday we’ll get a read on the health of the economy with the Durable Goods Report, which gives us an update on consumer and business buying behavior on big-ticket items that last for an extended period of time. Meanwhile, Friday will bring another read on the economy with the Gross Domestic Product Report, which is the broadest measure of economic activity.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.
———————–
The Mortgage Market Guide View…
Credit Reports: One May Not Be Enough
This summer, Fannie Mae instructed lenders that they should adopt a new policy that would include a second review of an applicant’s credit report just prior to closing. Why? The answer is simple: the credit profile of a borrower may have changed between the time of the initial review of the credit report and the time of closing. How will this impact the home loan?
The potential impact to a borrower who has utilized credit to make significant purchases after the initial credit report could include:
A delay in closing
Increase of closing costs and/or interest rate
A decreased loan amount
Denial of the loan
That’s right, in the worst-case scenario, a change in credit could even result in a loan being denied - even after an original approval had been granted. What should homebuyers do (or not do)?
In order to eliminate any possibility of potential problems before closing, anyone in the application process should use credit sparingly and make sure they adhere to the tips provided below by credit expert Linda Ferrari of Credit Resource Corp:
Don’t do anything that causes a red flag to be raised by the scoring system.
Don’t apply for new credit of any kind.
Don’t pay off collections or charge offs.
Don’t max out or over charge on your credit accounts.
Don’t consolidate debt onto one or two credit cards.
This list is not comprehensive, but it does give you a peek into situations that could create issues and could also be contrary to some ideas you have read previously.
Last weekend I participated in a workshop in Portland that was put on by The Taylor Group, the coaching company that I work with. They had us read a chapter from the book The Talent Code. It was fascinating! I downloaded the book and i’ve been listening to it while running and walking to work. The author Daniel Coyle visits nine talent hotbeds and makes some very interesting discoveries.
From the book’s website:
What is the secret of getting really good at something? How do we unlock it?
Journalist and New York Times bestselling author Daniel Coyle visited nine of the world’s greatest talent hotbeds — tiny places that produce huge amounts of talent, from a small music camp in upstate New York to an elementary school in California to the baseball fields of the Caribbean.
He found that there’s a pattern common to all of them — certain methods of training, motivation, and coaching. This pattern, which has to do with the fundamental mechanisms through which the brain acquires skill, gives us a new way to think about talent — as well as new tools with which we can unlock our own talents and those of our kids.
“The great thing in the world is not so much where we stand as in what direction we are moving.”Last week, the financial markets appeared to agree with Oliver Wendell Holmes’ words by looking for some more direction from the Fed after its FOMC Meeting.
While the Fed didn’t say much, they did state that Mortgage Bond holding income and proceeds would be reinvested into Treasuries. This helps the Treasury continue to pump out debt at low rates. But this relationship is a concern to the Stock market, as there is no doubt that this will lead to further problems down the road. In addition to “kicking the can,” the Fed did not provide a game plan on how it could handle deflation, a Japanese type economy, or longer-term inflation. This uncertainty is something that the Stock market hates. As a result, investors pushed Stock prices significantly lower in early trading Thursday - and the cash sale proceeds from Stocks found their way into Bonds.
———————– Markets Wanted More Direction from the Fed
In other news last week, the Labor Department reported that preliminary Productivity for the 2nd Quarter came in at -0.9%, which was below the 0.1% rise expected…and quite a bit lower from the 3.9% reading for the 1st Quarter. The decline in Productivity was actually the first negative reading since the 4th quarter of 2008. The slowdown in productivity is interesting, as higher productivity does many things. It keeps operating costs lower, lessens the need for hiring, and works to keep prices down. So this unexpectedly weak number, should it become a trend, may work to ease some of the deflation fears and, ironically, could help the labor markets.
Speaking of labor, last week’s Initial Jobless Claims report showed 484,000 people signing up for first-time unemployment benefits. That number was worse than expectations of 465,000 and the highest reading since February’s 498,000. No matter how you slice it, this is a horrible number… and it highlights that the most important element of any real-life economic recovery is still struggling.
According to the report, Continuing Jobless Claims did fall, but that number can be deceiving since the decrease has nothing to do with an improvement in the labor market. In actuality, the decrease in Continuing Claims, which lasts for the first 26 weeks of unemployment, is due to the benefit expiring - and those individuals rolling into the Emergency Unemployment Compensation benefit category. And in that category, due to the recently passed unemployment benefits extension, those collecting Emergency Unemployment Compensation, spiked a whopping, almost incomprehensible, staggering, shocking, (fill in your own favorite descriptor here) 1.2 Million from the prior week to 4.5 Million… and yet the majority of the media overlooked the real facts or were unwilling to report them. FUTURE EMPLOYMENT MAY BE ON THE MINDS OF TODAY’S COLLEGE STUDENTS, BUT THE MORE IMMEDIATE CONCERN SHOULD BE ON HOW TO BEST MANAGE THE FINANCIAL TESTS THEY’LL FACE WHEN THEY’RE ON THEIR OWN. CHECK OUT THE MORTGAGE MARKET GUIDE VIEW BELOW FOR 5 FINANCIAL LESSONS EVERY COLLEGE STUDENT SHOULD LEARN BEFORE HEADING TO SCHOOL.
Forecast for the Week:
This week, we’ll see a number of reports that have the potential to move the markets. We’ll start off with a dose of manufacturing news right away Monday morning with the Empire State Index, which looks at New York State’s manufacturing sector, including how busy it is and where things are headed. On Thursday, we’ll also see the Philadelphia Fed Index, which is one of the most important regional manufacturing indices. These two reports will provide an early look at the manufacturing sector for the month of August.
Things kick into full swing on Tuesday with a number of important reports, including the Producer Price Index (PPI), which measures inflation at the wholesale level. Remember, inflation is the archenemy of Bonds and home loan rates, so it will be important to see what this report reveals. The PPI report comes just after the Consumer Price Index was released last week showing the highest headline reading in a year, so the markets will definitely be paying attention to this report. We’ll also see reports on Industrial Productionand on Capacity Utilization, which is considered a telling inflation indicator.
Tuesday also brings another dose of news on the health of the housing industry with reports on the number of Housing Startsand Building Permitsin July. Housing Starts for June came in below expectations and at the lowest level in 8 months. And even though Building Permits showed an uptick, it was primarily in the multi-family area rather than in the more important and widely watched single-family area, which showed the lowest permits since April 2009. I’ll be watching to see if those numbers improve for July.
Finally, the week of reports caps off on Thursday with the weekly Initial Jobless Claimsreport. As discussed above, last week’s report was disappointing to say the least.
In addition to those reports, the Treasury Department and White House will be hosting a “Conference on the Future of Housing Finance”next Tuesday where the future of Fannie Mae and Freddie Mac will be discussed. You may recall a couple weeks ago, rumors were swirling of a major bailout to help millions of homeowners who are upside down on their mortgages - and some pointed to this conference as the venue to release such a big announcement. So I’ll be keeping a close eye on this conference and how it impacts homeowners. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.As you can see from the chart below, Mortgage Bonds have continued to climb a staircase higher. Overall, Bonds and home loan rates ended last week where they began - which is at historically good levels. If you or someone you know has been thinking about purchasing or refinancing a home, now is an ideal time. Even if you’re not sure what you want to do, a brief conversation can provide you with the information you need to make an informed decision.
———————– Chart: Fannie Mae 4.0% Mortgage Bond (Friday, August 13, 2010)
Have a great week and let us know if there is anything we can do to help. — abe
You all know that one of the biggest factors
holding the upper-end of the market back is the frozen jumbo mortgage market.
Well, I have good news, the market is turning and we’re positioning ourselves
to be major player in this market. Yesterday we launched two new loan products,
the Jumbo 30yr fixed and the Jumbo 5yr ARM. The 30yr today is at a rate of
4.875% and the 5yr ARM is at 3.625%. These are huge improvements over the
competition. These loans are Sterling portfolio products, which means we make
the rules and can make exceptions to the guidelines for strong borrowers. More
changes and additions will be coming so stay tuned.
The Seattle Times reports this morning that sales volume is down but prices are up for the second month.
That’s the abridged version of how the real-estate market fared in King County in July.
With expired federal tax credits no longer an incentive, home sales dropped. Buyers closed on 1,474 houses in the county last month, according to statistics released Thursday by the Northwest Multiple Listing Service.
It was the smallest total since February, and a 15 percent drop from July 2009. The decline broke a 13-month string of year-over-year increases.
But the median price of the houses that sold last month was $399,950, highest since December 2008. The median price was up more than 4 percent from last July, and was just the second monthly year-over-year increase since January 2008.
Real-estate professionals attributed the increase to a shift in the makeup of properties that sold. With fewer first-time buyers in the market because of the expiration of the tax credits, higher priced properties made up a larger share of sales in July, they said.
In Seattle, for instance, 40 percent of the houses that closed in July sold for $500,000 or more, compared with just 26 percent in the same month last year, Windermere Real Estate spokeswoman Sonja Riveland said in an e-mail. (read the whole article)
“UNCERTAINTY AND MYSTERY ARE THE ENERGIES OF LIFE.”And while the Bond market may agree with R.I. Fitzhenry’s words about uncertainty, most investors in the Stock market don’t… just ask Fed Chairman Ben Bernanke. Last week, Mr. Bernanke testified before the Senate and House Banking Committees, making several cautious comments on the state of the labor market and inflation, as well as stating that the Fed would be ready to take action should economic conditions worsen. But the comment that spooked Stocks and helped Bonds was when Mr. Bernanke said the economic outlook is “unusually uncertain.” Stocks hate uncertainty but Bonds usually perform well as a safe haven, so Bonds and home loan rates improved upon the utterance of these words.
Mr. Bernanke also stated that one way to normalize the size and composition of the Federal Reserve’s securities portfolio would be to sell some holdings of agency debt and Mortgage Backed Securities. And an article in the New York Times concurred, stating that the Fed’s MBS holdings are already problematic and put the Fed in a tough position where it may find itself having a conflict of interest - and here’s why.
While inflation is subdued for now, it’s only a matter of time before the Fed will need to hikes rates in order to keep inflation controlled. But any hike in rates would cause the Fed to lose significant value on their Mortgage Backed Security holdings. So the tough question is… how will the Fed act, in light of this conflict?
Remember, the Fed purchased $1.25 Trillion worth of Mortgage Bonds, as well as several hundred Billion in Treasuries. Those purchases helped drive rates down towards historic low levels - and yet the housing market is still not entirely healthy. So this also begs the question, what would cause a different result? One perspective is that the Fed - like many in Washington - missed the point. The problem is not that rates need to be lower. Many individuals already want to purchase or refinance at today’s low rates, but are unable to do so because of tighter underwriting guidelines, as well as low valuations. A perfect example is the “no income verification” loan - which has been cast in a negative spotlight as a “liar loan” and virtually eliminated. But there has been a good track record for those loans in the past when underwritten properly. If the government were to direct some resources towards reestablishing some of these more reasonable lending tools, the results might be better.
Instead - the sweeping Financial Reform Bill was signed into law last week, and the implications of this 2,300-page legislation are sure to be broad. Former Fed Chairman Alan Greenspan himself said that every page appeared to be loaded with unintended consequences… so as this legislation is analyzed and dissected, you can be assured I’ll be keeping a close eye on the impacts it may have and will keep you informed.
———————– Fed Chair Bernanke Calls the Outlook “Unusually Uncertain”
But the Federal Reserve and Financial Reform are only part of the picture. Mortgage Bonds and home loan rates are also impacted by global financial news.
In fact, just last week the Bank of Canada raised rates by .25%, up to .75%… and this could have a major implication on our Bonds. Part of the reason home loan rates have dropped so much has been the currency trade, where the Euro has weakened against the Dollar. Europeans have been taking advantage of the currency trade, and parking money in the US - much of which is in our Bonds. But now, with Canada’s improving economy and slightly higher rate environment, their yields might not only be more attractive for Europeans, but their currency may provide a more lucrative option as well. And the sell-off in our Bonds early last week could have been somewhat due to traders anticipating this move by the Bank of Canada.
Another story of uncertainty is developing in China. China’s reserves, which are held mostly in US Treasuries as well as Mortgage Backed Securities, stand at $2.5 Trillion. But last quarter marked the first time in a long time that these holdings did not increase. Does this mean that China is slowing their US debt purchases? I will be keeping close tabs on this because a slowdown in US debt purchases from China could adversely impact the Bond market, as their purchases have also contributed to the low rate environment in the US. THESE BIG-PICTURE DEVELOPMENTS IMPACT THE MARKETS AND, IN TURN, YOUR FINANCIAL SITUATION. BUT EVERYDAY PURCHASES CAN ALSO DRAIN YOUR HOUSEHOLD BUDGET. CHECK OUT THE MORTGAGE MARKET GUIDE VIEW BELOW TO LEARN HOW YOU CAN STOP OVERPAYING… STARTING RIGHT NOW.
Forecast for the Week
A number of reports which have the potential to move the markets are coming this week, and we’ll start off with a dose of housing news right away Monday morning with the New Home Salesreport. This report comes after last week’s worse-than-expected report on Housing Starts, so the markets will be paying close attention to this report.
The manufacturing sector of the economy will also be in the spotlight this week. On Wednesday, Durable Goods Orderswill be released. Then Friday brings the Chicago PMI, which surveys more than 200 Chicago purchasing managers about the manufacturing industry and is a good indicator of overall economic activity.
On Thursday, we’ll see another weekly read on Initial Jobless Claims. Last week, Initial Jobless Claims rose by 37,000 to 464,000, which was above the 445,000 that was expected. Overall, unemployment is still disappointingly high.
The news heats up on Friday when we get a look at the Gross Domestic Product (GDP)and GDP Chain Deflatorfor the second quarter. The Chain Deflator is a key inflation measure included in the GDP Report. And since inflation is the archenemy of Bonds and home loan rates, this report could be a market mover.
Finally, there are two reports on tap this week regarding how consumers feel about the economy with the Consumer Confidencereport on Tuesday and the Consumer Sentiment Indexon Friday. In addition, the Treasury Department will auction $38 Billion in 2-Year Notes on Tuesday, $37 Billion in 5-Year Notes on Wednesday, and $29 Billion in 7-Year Notes on Thursday. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.As stated above, uncertainty in the US and abroad has been impacting the markets, which has helped Mortgage Bond prices climb steadily higher since April, as you can see in the chart below. And this means that home loan rates have moved steadily lower. This presents an unbelievable opportunity for people looking to purchase or refinance a home. It only takes a few minutes to see how you or someone you know can benefit from today’s low rates. Even if you’re not sure you can refinance, it doesn’t hurt to conduct a quick review. Please call me today before this opportunity passes by.
———————–
———————– Chart: Fannie Mae 4.0% Mortgage Bond (Friday, July 23, 2010)
They say the only constant is change… And more change is coming, as the sweeping Financial Regulation Bill was passed by the Senate last week and will be signed by President Obama in short order to become law. So what does this change mean… and how will it impact home loan rates? Here’s what you need to know.
The Bill calls for a new consumer protection agency and prohibits Banks from taking risky bets. While those things are important, it’s also important to realize that this legislation… over 2,000 pages worth… amazingly does nothing to address the core reasons for the financial collapse. Fannie Mae and Freddie Mac are completely left out of this legislation. The credit rating agencies, who may have played the largest role in the financial collapse, also go unmentioned.
In fact, when former Fed Chairman Alan Greenspan was asked about the Financial Regulation Bill, he noted that this was the first time the Fed was not asked to write a regulation of this kind. He also said that there are “unintended consequences” in every page of this bill.
And one consequence we’ve seen already is that corporations are hoarding cash, and are somewhat stuck like a deer in the headlights due to the uncertainty that this and other pending legislation is creating. And when corporations hoard cash, they don’t typically hire workers, and job creation is crucial to our recovery. What all this will mean for our economy and home loan rates remains to be seen… which is why now is the perfect time to act, while home loan rates continue to be some of the best they have ever been! If you or anyone you know would like to learn more about this exceptional opportunity, please don’t hesitate to call or email. Or forward this newsletter on to anyone you think may benefit and I’d be happy to talk to them free of chang
In other news, there hasn’t been much change on the inflation front, which is good news for Bonds and home loan rates. Remember: inflation erodes the return of an asset like a Bond… so inflation is the arch enemy of Bonds and home loan rates. Both the Producer Price Index - which measures inflation at the wholesale level - and the Consumer Price Index for June showed that inflation continues to remain tame.
However, two changes that would be welcome are in the retail sales and manufacturing areas. Retail Sales for June came in lower than expected for the second month in a row. Although details of the report were mixed, the overall indication is that consumers and businesses remain cautious on purchasing big-ticket items. In addition, the Empire State Manufacturing Index and Philly Fed Index showed that factories and manufacturing still look very sluggish overall. Changes for the better in both of these areas will be reflective of our economy growing stronger, and these are things to watch for moving forward.
All in all, the news from last week helped Bonds and home loan rates reach record levels again, and they ended the week about .125 percent better than where they began.
GROWING YOUR BUSINESS IS ALWAYS CHANGE IN THE RIGHT DIRECTION. CHECK OUT THE MORTGAGE MARKET GUIDE VIEW FOR AN ARTICLE FROM KIPLINGER.COM ON “TWEETING” YOUR WAY TO SUCCESS.
Forecast for the Week
There’s a double dose of housing news this week. Tuesday’s Housing Starts and Building Permits Reports will give us an update on the health of the new construction sector of the housing market, while Thursday we will get a read on Existing Home Sales.
Thursday also brings another Initial Jobless Claims Report, and any changes for the better in this area will be welcome! In fact, last week, the National Federation of Independent Businesses (NFIB) reported that its monthly “Small Business Optimism” index turned weaker in June. This is important to follow, because small businesses represent an important job creation engine - and the NFIB said the decrease was “a very disappointing outcome.”
In addition, earnings season continues this week and some reports to look for include IBM after the markets close Monday, Goldman Sachs before the markets open on Tuesday, and Coca Cola and Morgan Stanley before the markets open on Wednesday. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.
As you can see in the chart below, Bonds and rates ended the week on an improving trend though they were unable to improve beyond a tough ceiling reflective of their best levels. I’ll be watching closely to see what happens this week.
Chart: Fannie Mae 4.0% Mortgage Bond (Friday, July 16, 2010)
Have a great week and let us know if there is anything we can do.
“Over there… over there…” The old patriotic song hit it on the head, in terms of what has been driving market action lately… news from overseas. In the absence of US economic reports last week, Stocks received some help from headlines “over there.” Late last week, the European Central Bank (ECB) left interest rates at a record low - which wasn’t really a surprise, given the sharp economic slowdown and uncertainty in Europe.
But in a separate briefing, ECB Executive Board member Juergen Stark stated that “the worst of the sovereign debt crisis seems to be over.” He went on to say that tensions within the financial markets have “calmed down” as the enormous $442 Billion collection of one-year loans by the ECB went without any problems. Although the Stock market may benefit from such calming commentary, the reality is the worst may not be over yet. In fact, rumors are surfacing that Italy may be the next country to reveal debt problems - making this a story to continue watching.
———————– European Central Bank and Stress Test News Helped Stocks
There was also a lot of talk overseas last week about bank stress tests - and the positive buzz helped Stocks around the globe move higher. Similar to what took place in the US a couple of years ago, these stress tests may provide some transparency and help differentiate which financial institutions are strong - so they’re not lumped in with some of the more troubled ones.
Although the official reports will not be released until July 23rd, French Finance Minister Christine Lagarde indicated last week that the final results will show that European banks are “solid and healthy.” When stress tests were conducted on the US banks, the positive results helped boost financial Stocks nearly 40% over the following several months. It is possible that favorable results from the European stress tests could bolster confidence in the Eurozone, which would unwind some of the trading activity that has taken place during the past two months - that being the flood of money out of Europe into the US and purchasing our debt securities and Bond instruments, including Mortgage Bonds. If this starts to reverse, home loan rates will worsen… and this can happen very quickly. I’ll be watching this closely - but if you have been waiting to get in touch regarding taking advantage of still-historic low home loan rates… don’t wait!
ECONOMIC NEWS FROM EUROPE ISN’T THE ONLY HOT STORY THAT DESERVES YOUR ATTENTION. THE TEMPATURE HAS SOARED LATELY ACROSS THE US, SCORCHING THE NATION AND PROMPTING MANY PEOPLE TO REVIEW THEIR ENERGY USE - AND ITS IMPACT ON THEIR BUDGET. CHECK OUT THE SPECIAL MORTGAGE MARKET GUIDE VIDEO VIEW BELOW TO LEARN HOW YOU CAN PERFORM A HOME ENERGY AUDIT.
Forecast for the Week
Last week’s economic calendar was very light; but this week, we’ll see the exact opposite as reports flood the headlines near the end of the week. Along with more news coming from overseas… the week’s action could cause home loan rates to change trend. Bond prices have been rocketing higher with home loan rates moving lower… but history tells us that a reversal is in store - it’s just a matter of when.
On Wednesday, we’ll see the Retail Sales figures for June, as well as the Meeting Minutes from the past Fed meeting. Although the Fed hasn’t made any major policy changes as of late, the meeting minutes are still closely watched by the markets for any stray comments or discussion on matters such as inflation or the “extended period” language regarding rates.
Things heat up on Thursday with a number of reports on manufacturing and inflation. The Philadelphia Fed Index and the Empire State Index will both be released Thursday morning - giving us a detailed look at the manufacturing sector. We’ll also see the latest reports on Capacity Utilization and Industrial Production, as well as the Producer Price Index (PPI), which measures inflation at the wholesale level. The day after the PPI is reported, we’ll see the Consumer Price Index (CPI), which measures inflation at the consumer level. Remember, inflation is the archenemy of Bonds and home loan rates, so it will be important to see what these reports reveal.
We’ll also see the weekly Initial Jobless Claims report on Thursday morning. Last week’s number came in better than expected and showed an improvement over the previous report, which gave the financial markets a glimmer of hope. It also gave Bond investors an excuse to take a little profit off the table - since Bonds have been priced for perfection, and any blip in the economic data is providing reason to preserve profits.
In addition to those reports, the Treasury Department will auction $69 Billion this week. The auctions will consist of $35 Billion in 3-year Notes on Monday, $21 Billion in 10-year Notes on Tuesday and $13 Billion in 30-Years on Wednesday. The good news is, the $69 Billion total represents the lowest offering in a year - and when this “low” figure was announced last week, it helped Bond prices improve.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. And as you can see in the chart below, Mortgage Bonds have been inching higher - helping home loan rates move lower - and making this an ideal time to review your current loan or purchase a new home!
If you or someone you know wants to see how these rates might help your situation, please call me today. Even if you aren’t sure if you can refinance or buy - get in touch, and let’s discuss the possibilities. Such unbelievable low rates will not last forever.
———————– Chart: Fannie Mae 4.0% Mortgage Bond (Friday, July 9, 2010)
The Mortgage Market Guide View…
Home Energy Audit
With 100-degree temperatures scorching the nation lately, staying cool and comfortable has been especially important this month. At the same time, no one wants to pay more than they have to for their gas and electric bills. Check out this video from Kiplinger.com
Have a great week and let us know when we can be of help. — abe
What happens in Washington doesn’t stay in Washington! And there was a lot happening in Washington this past week, between the Fed’s two-day meeting and actions in Congress. So how will all of these happenings impact you…and home loan rates, which are near all-time lows? Read on for details.
Last week, the Fed decided to keep the Fed Funds Rate at 0.25%, and also reiterated in its Policy Statement that economic conditions warrant keeping the Fed Funds Rate low for an “extended period”. First, what is the Fed Funds Rate? It is the lending rate banks charge each other for the use of overnight funds, and it is used as a base rate that many other lending rates are based on, for consumer and business loans.
And second, why is the “extended period” language significant? The Fed has to time very carefully any action – or even hints of action – on raising the Fed Funds Rate, which they have held at the lowest levels in history for the last year and a half. If the Fed raises the Fed Funds Rate too soon, it could slow economic activity and cause a “double dip” recession. However, if the Fed waits too long to raise the Fed Funds Rate, inflation could result. Remember, inflation is the arch enemy of Bonds and home loan rates…and signs of inflation could definitely cause home loan rates to worsen from their current low levels.
Even though there have been more concerns expressed by various Fed members about inflation and the long term effects of keeping the Fed Funds Rate too low for too long, the economic data recently reported (such as the weak Jobs Report and other reports showing inflation is tame at present) as well as the ongoing issues in Europe helped the “extended period” language to survive through another Fed meeting. This is an important issue to keep watch on.
Congress was just as busy as the Fed last week. On Thursday, the Financial Reform Bill was finally reconciled between the House and Senate. The final draft includes a Consumer Financial Protection Agency, which will have the authority to police banks for mortgage lending and credit-card abuses. The bill will move to the President for his signature once both houses of Congress approve the final version.
However, Congress did not pass the extension of the Home Buyer Tax Credit. Note: This extension was only going to be for people who were under contract by the initial April 30th deadline, extending their June 30th closing deadline to September 30th. The extension was part of the larger Jobs Bill, which included State aid and an extension of unemployment benefits for people out of work more than six months – and would have added $33B to the deficit. Meanwhile, the National Association of Realtors is saying that up to 30% of homes that went under contract by the April 30th deadline of the Homebuyer Tax Credit will likely not close by the current June 30th deadline.
There was other housing news last week, as both New Home Sales and Existing Home Sales were well below expectations. While a decline in sales was expected after people were racing to qualify for the April 30th Tax Credit deadline, the numbers are still a bit of a disappointment.
However – home prices remain affordable, and home loan rates are far from disappointing at the moment…last week they reached all time low levels! If you or anyone you know would like to learn more about this exceptional opportunity, please don’t hesitate to call or email. Or forward this newsletter on to anyone you think may benefit and I’d be happy to consult with them free of charge.
Forecast for the Week
There will be plenty happening this week, ahead of the Independence Day holiday. The week may start with a bang, as Monday’s Personal Income and Personal Spending Reports arrive, giving us a look at the Core Personal Consumption Expenditure (PCE) Index as well…which just happens to be the Fed’s favorite gauge of inflation. Rest assured the Fed will be watching this report very closely. Any hint that inflation is heating up could definitely impact the Fed’s decision on rates and the “extended period” language at future Fed meetings.
Thursday brings another Initial Jobless Claims Report. Initial Jobless Claims came in at 457,000 last week and Continuing Claims at 4.55 Million. In addition, an additional 4.73M people are claiming EUC (Emergency Unemployment Compensation) benefits. The continuing high level of unemployment claims is disturbing, but things will improve. Remember, job losses come in the thousands as companies endure sweeping layoffs, but individuals are hired back one at a time. And remember – since the Jobs Bill has not been passed, more people will start to drop off extended unemployment benefits – and rejoin the workforce as formally unemployed.
And there could be some real fireworks on Friday, as the Labor Department releases the Jobs Report for June. Last month’s Jobs Report showed 431,000 jobs created in May. While on the surface this seems positive, the number was below expectations and also was primarily made up of temporary census workers…who will once again join the ranks of the unemployed when the 2010 Census has been completed. The Unemployment Rate did drop from 9.9% to 9.7%, but overall May’s Jobs Report was disappointing.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.
As you can see in the chart below, home loan rates hit record low levels last week. I’ll be watching closely to see if this trend continues.
Chart: Fannie Mae 4.0% Mortgage Bond (Friday, June 25, 2010)
Have a great week and let us know if there is anything we can do.
Speaking of revisiting the past… back in 1985, the Kansas City Royals faced the St. Louis Cardinals in the World Series. This was known as the “I-70 Showdown” World Series, as I-70 is the route that connects both cities, and the road along which fans traveled between both stadiums. Lately, there’s been another I-70 Showdown, between Kansas City Fed President Thomas Hoenig and St. Louis Fed President James Bullard. And interestingly enough, both Fed Presidents spoke at the ongoing Jackson Hole Symposium, which was hosted last week by the Kansas City Fed. Hoenig kicked off things with his opening speech Thursday night. While he has clearly been the most vocal Fed inflation hawk - calling for an increase in the Fed Funds Rate to at least 1% ASAP to prevent future inflation - his opening remarks were mellow.
to statistics released Thursday by the Northwest Multiple Listing Service.
There will be plenty happening this week, ahead of the Independence Day holiday. The week may start with a bang, as Monday’s Personal Income and Personal Spending Reports arrive, giving us a look at the Core Personal Consumption Expenditure (PCE) Index as well…which just happens to be the Fed’s favorite gauge of inflation. Rest assured the Fed will be watching this report very closely. Any hint that inflation is heating up could definitely impact the Fed’s decision on rates and the “extended period” language at future Fed meetings.
