Mortgage Market Guide Update

  Last Week in Review: Here’s what you need to know about Bonds and home loan rates after a volatile week of Debt Ceiling debates.

Forecast for the Week: This will be a huge week of news, ranging from heavy-hitting reports to the Debt Ceiling debate! Here’s what to watch.

View: Beat the summer heat with cooling options that benefit your budget, too! Read the tips below.

 
     

 

  Last Week in Review  

 

 

     
  “I GET IRRITATED, NERVOUS, VERY TENSE OR STRESSED, BUT NEVER BORED”French actress Catherine Deneuve. Those words sum up the state of mind not only in the markets last week, but also across the country. The Dow finished its worst week in a year and Mortgage Bonds traded in a volatile fashion last week, mirroring the tense – and often irritating – news out of Washington. These are anything but boring times. But how does the Debt Ceiling debate impact Bonds and home loan rates? Read on to find out.

 

Going my way? The volatile and uncertain news story created a rare trading correlation between Stocks and Bonds. Often, Stocks and Bonds trade in an inverse direction (meaning that if one goes up, the other typically goes down). However, in 8 out of 10 recent days, both Stocks and Bonds have traded in the same direction – and this unusual scenario has happened less than 1% of the time over the past decade.

No need to panic. One important item to note is that the recent losses in the Bond market are far from a “panic selling” scenario, which indicates that the market senses that a deal will ultimately be made on the debt ceiling debate and that in the long term US Debt will still provide a relative safe haven from global uncertainty and economic sluggishness.

After all, the weak economy in Europe is still a factor. And in a world where there is high uncertainty and weak economic prospects, the US Bond Market will continue to attract funds – which could help keep home loan rates attractive for now.

Two Scenarios… No one knows exactly how the Bond market would react if the August 2nd deadline comes and goes without a debt agreement, since this has never happened before in the history of our country. But here are two scenarios to consider…

1. If a deal DOES pass, which many experts still think will happen, any deficit reduction program should strengthen the value of US debt, because there will be less spending. At the same time less government spending will also weigh on Gross Domestic Product (GDP). And just last week we saw how weak the GDP already is when the 2nd Quarter GDP came in well below expectations and at the slowest growth rate in 2 years. Additionally, the 1st Quarter GDP was revised sharply lower than it was previously reported. Remember, a weak GDP would make Stocks LESS attractive and Bonds MORE attractive – as Bonds generally perform better during sluggish economic times.

2. If a deal does NOT pass, the Treasury will be unable to auction off new securities since we will be unable to take on new debt as a country because we have reached our debt ceiling limit. The lack of new Bond supply coming to the Bond market will make existing Bonds/Treasuries/Notes more valuable – which is the opposite of what happens when new Bonds continue to flood the market.

Time for a contingency plan? Last Friday, Mortgage Bonds got a boost higher on news that a Debt Ceiling contingency plan would be brought forth by the Treasury Department. The plan would ensure present holders of US debt will receive their interest payments on time before making other payments, even if the debt ceiling is not raised. Such a move would likely push out the original August 2nd deadline to somewhere in mid-August, helping the US buy some more time as the frustrating-to-watch Debt Ceiling debate wages on.

The bottom line is that Bonds are still holding their own and home loan rates are still attractive for now. So if you or someone you know has been considering refinancing or purchasing a home, it’s a great time to look at your options. After all, this is a very volatile world and the current bullish sentiment in Bonds could change in a hurry.

 
     

 

  Forecast for the Week  

 

 

     
  As the Debt Ceiling debate impacts Stocks and Bonds, the markets get set for a week of heavy-hitting reports:

  • We start off right away Monday morning with the ISM Index. This is the king of all manufacturing indices and is considered the single best snapshot of the factory sector.
  • On Tuesday, the markets will see reports on Personal Spending and Personal Income, as well as the Personal Consumption Expenditures (PCE) Index, which is the Fed’s favorite gauge of inflation.
  • The big topic of the economic reports this week will be the labor market. First up is the ADP National Employment Report on Wednesday, which measures non-farm private employment.
  • The ADP report will be followed by another round of Initial Jobless Claims on Thursday. In last week’s report, Initial Jobless Claims broke below the 400,000 mark for the first time in 16 weeks! I’ll be looking forward to this week’s report to see if that trend continues.
  • Finally, the busy week culminates in the all-important Jobs Report on Friday. This report features new data regarding Non-Farm Payrolls, the Average Work Week, Hourly Earnings and the Unemployment Rate. Needless to say, this report can be a big market mover!

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, Mortgage Bonds and home loan rates finished strong at the end of last weekend, as uncertainty had investors opt for the safe haven provided by Bonds. I’ll be watching closely to see how the ongoing Debt Ceiling debate and the after shock impacts Bonds and home loan rates.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Jul 29, 2011)

 

 
     

 

  The Mortgage Market Guide View…  

 

 

     
 
     
  How to Cut Cooling Costs in a Heat Wave

These eight tips will help keep your electric bill under control.

By Cameron Huddleston, Kiplinger.com

It is hot outside. Too hot to even go to the pool because the water’s so warm that it doesn’t cool you down. So what do you do if you live in a part of the nation taking a beating from this heat wave? You retreat indoors and crank up the AC. Then you gasp when you see the electric bill and start looking for possessions to pawn to pay it.

Keeping cool doesn’t have to bankrupt you, though. Edison Electric Institute (EEI), the association of shareholder-owned electric companies, offers these eight simple, no-cost tips to help you keep your electric bill under control this summer:

Set the thermostat at 78 degrees or higher when you’re home. That’s where I keep my thermostat set, and I feel comfortable at home all day — even when the heat index outside is in the triple digits. When no one is home, turn up the thermostat to 85 degrees. You’ll save 1% to 2% on cooling costs for each degree you raise your thermostat, according to EEI. And be sure to clean your air filter every 30 days to keep your air-conditioning system working efficiently.

Close the curtains or shades on any south- or west-facing windows to save 2% to 4% on cooling costs.

Turn on ceiling and table fans then raise the thermostat setting about four degrees — you’ll still feel cool. Make sure ceiling fans are turning counterclockwise and use them only when you’re in the room.

Shut doors to unused rooms and close any air supply vents inside them to reduce cooling costs up to 3%.

Cook with the microwave instead of a regular oven to reduce cooking costs up to 90%. If you can stand the heat outside, cook on a grill to lower cooking costs even more.

Install compact fluorescent lights. You’ll reduce lighting costs per fixture by about 66%, according to EEI. Be sure to turn off lights that aren’t being used and, if possible, dim ones that are being used.

Wash and dry full loads of clothes and dishes to save 2% to 4% on energy costs because you’ll be washing fewer times than if you ran your appliances to wash several smaller loads. You’ll also save by using cold water rather than warm or hot.

Check out your power company’s Web site because all electric companies offer money-saving tips, and many have energy-saving programs and incentives, including free online energy audits, rebates for purchasing high-efficiency appliances and low-interest loans to help purchase high-efficiency appliances.

Reprinted with permission. All Contents ©2011 The Kiplinger Washington Editors. www.kiplinger.com.

Economic Calendar for the Week of August 1-5, 2011

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of August 01 – August 05

Date

ET

Economic Report

For

Estimate

Actual

Prior

Impact

Mon. August 01

10:00

ISM Index

Jul

54.0

55.3

HIGH

Tue. August 02

08:30

Personal Income

Jun

0.1%

0.3%

Moderate

Tue. August 02

08:30

Personal Spending

Jun

0.1%

0.0%

Moderate

Tue. August 02

08:30

Personal Consumption Expenditures and Core PCE

Jun

0.3%

0.3%

HIGH

Tue. August 02

08:30

Personal Consumption Expenditures and Core PCE

YOY

NA

1.2%

HIGH

Wed. August 03

08:15

ADP National Employment Report

Jul

85K

157K

HIGH

Wed. August 03

10:00

ISM Services Index

Jul

53.1

53.3

Moderate

Thu. August 04

08:30

Jobless Claims (Initial)

7/30

405K

398K

Moderate

Fri. August 05

08:30

Non-farm Payrolls

Jul

78K

18K

HIGH

Fri. August 05

08:30

Unemployment Rate

Jul

9.1%

9.2%

HIGH

Fri. August 05

08:30

Hourly Earnings

Jul

0.2%

0.0%

HIGH

Fri. August 05

08:30

Average Work Week

Jul

34.3

34.3

HIGH

August 2nd Moorings

Hello and welcome to this week’s edition of Moorings, where local and national mortgage and real estate news intersect. Certainly the big news this week is the last minute approval of the debt ceiling deal by the United States House of Representatives which will enable country to borrow more money. We are still waiting for the Senate and Presidential approval of the deal, but it is largely expected to pass sometime today (Tuesday) and hopefully the country put this behind and move forward.  It’s been one of those situations where the excesses of the past have caught up with us, and there is no way to make anyone happy with any kind of plan.  Fiscal responsibility has the inherent responsibility of saying NO, not a popular word to my two and a half year old son, and certainly not a popular word in Washington.

 

Now on to other news, let’s take a look and see where interest rates are for this week. Considering the last minute debt ceiling deal, it’s rather surprising to me that interest rates have stayed at all time lows. A borrower looking to purchase or refinance a home at a thirty year fixed conventional mortgage can expect an interest rate of 4.625% which remains at near historic levels. Another phenomenal deal is a five year adjustable rate mortgage which can be had for only 3.5%. Think about that for a minute…only 3.5% interest on a mortgage of up to $417,000. Considering the average American only lives in a home for five to seven years, that is really a fantastic deal.

 

In national real estate news, the National Association of Realtors announced that pending home sales rose in June. Following a wide swing in April and May, activity increased in the West and South, while decreasing in the Midwest and Northeast, but all regions show gains from a year ago. The overall pending home sales index rose 2.4 percent to 90.9 in June, which is actually higher than last year’s index when the last of  home buyer tax credit sales had to close by. Keep in mind that not all pending sales end up closing, but it’s still a positive indicator.

 

Taking a look closer to home, New Hanover County has had 1,531 home sales year-to-date and an average sale price of $252,464. The average  number of days on market is 157. In comparison, last year at this same point there had been 1,650 sales with an average sale price of $257,509 and 134 days on market. Considering that last year’s real estate market had a huge boon with the home buyer tax credit, I think the local market is doing fairly well without it. I would think that if you took out the number of first-time buyers purchasing a home last year to get their $8,000 credit, this year would likely have more sales than last. If you have been waiting for an opportunity to buy a Waterfront home on Wrightsville Beach, call your realtor and go shopping, and make an offer!   I have seen properties selling for the best prices in recent history. Well that’s it for this week, until next, Be Blessed and Numbers 6:24-26 be on you.