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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.

3 Financial Reasons To Buy Now

Here are three great financial reasons why you should not wait before taking the plunge into homeownership.

1. The 30-Year Mortgage May Disappear

There has been much debate regarding government’s role in providing support for homeownership. There are several experts who believe if Fannie Mae and Freddie Mac’s roles are eliminated, or even limited, it may be the end to the 30-year mortgage. This concern is addressed in MSN Real Estate’s, Is it curtains for the 30-year mortgage?

2. QRM Requirements Could Be Much More Stringent

Here are proposed changes to the requirements for a ‘qualified residential mortgage’:

· Certain mortgage types would be eliminated

· You would need to put a minimum of 20% down

· You would need a minimum 690 FICO score

· The ratios of income to both the mortgage payment and overall debt would become much more conservative (28% and 36%)

There would be loans available to purchasers who don’t qualify under the new rules. However, they will probably be more expensive to the buyer (both in rate and costs).

3. Rents are Expected to Increase

The supply of available rentals is decreasing and the demand is increasing. That will lead to an increase in rental costs throughout the year. The Wall Street Journal recently quoted a report by Reis, Inc in which it states, “Expect vacancies to continue declining, and rents rising through the rest of 2011 at an even faster pace.”

Bottom Line

You may be waiting on the sidelines to see if prices will continue to depreciate before you purchase a home. The mortgage expense is a major piece in the overall financial picture of homeownership. Make sure you consider it when timing your decision.

Mortgage Market Guide – July 25th, 2011

“The heat is on.” The title of that Glenn Frey song not only applied to the sweltering temperatures around much of the nation last week, it also applied to the debt ceiling debate, as the heat was on our leaders in Washington to finalize a solution to our debt situation. Why is this important? Read on for details.

It only takes a look at what is happening in Europe these days to understand why it’s crucial that the United States finds a solution to the debt ceiling issue. Not only have eight European banks recently failed a stress test, but last week there was news that Greek, Italian, Portuguese, and French “credit default swaps” (which are insurance policies against default) were trading at record levels. While the European Union is continuing to work to contain Europe’s debt problems and prevent a default in Greece (and elsewhere), these events bode a very important lesson for the US.

Why? Because solving our debt ceiling debate and finding a long-term plan for lowering our deficit and being fiscally sound will raise confidence in our debt and help the US keep its AAA credit rating from the various credit rating firms like Moody’s and Standard and Poor’s. This will help investors continue to see the US as the ultra safe haven for their money, which is a key aspect of our continued economic recovery.

Speaking of our economic recovery, there was some good news last week for the housing sector, as June Housing Starts and Building Permits were both reported better than expected. While this is only one number and one number doesn’t make a trend, this is a good figure, and I will be watching closely for follow through in future readings.

If you’ve been thinking about buying or refinancing a home, give me a call or send me an email to learn how you can take advantage of home loan rates that remain near some of the best levels we’ve seen this year. Or forward this newsletter on to someone you know who may benefit.

Forecast for the Week  
Earnings season continues, with reports from 3M, Ford, and Exxon, among others. Plus, a busy week is ahead when it comes to economic reports. Look for:

  • On Tuesday we’ll get an idea about how people are feeling about the economy with the Consumer Confidence Report.
  • Tuesday also brings a report on New Home Sales, which will be followed by the Pending Home Sales Report on Thursday.
  • Thursday also brings another weekly Initial and Continuing Jobless Claims Report. Last week’s Initial Jobless claims came in at 418,000, above the 400,000 mark for the 15th consecutive week. This leading indicator on job market health tells us that the labor market pains have not subsided.
  • Rounding out the week is a double read on the state of the economy with Wednesday’s Durable Goods Orders, which gives us an update on consumer and business buying behavior on big-ticket items, and Friday’s 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.

As you can see in the chart below, uncertainty in Washington and overseas caused volatility and anxiety in the markets last week, which put pressure on the Bond market and home loan rates. But remember, rates are still very attractive right now. Let me know if I can answer any questions for you.


———————–

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Jul 22, 2011)
Japanese Candlestick Chart

July 26th Moorings Column

Hello and welcome to this week’s edition of Moorings. Once again the main topic of conversation continues to be the United States Debt Ceiling which has still yet to be increased. The heat is definitely on legislators on both sides of the political aisle to come to a compromise and put this issue behind us. It only takes a look at what is happening in Europe these days to understand why it’s crucial that the United States finds a solution to the debt ceiling issue. Not only have eight European banks recently failed a stress test, but last week there was news that Greek, Italian, Portuguese, and French “credit default swaps” (which are insurance policies against default) were trading at record levels. While the European Union is continuing to work to contain Europe’s debt problems and prevent a default in Greece (and elsewhere), these events bode a very important lesson for the US.

 

Why? Because solving our debt ceiling debate and finding a long-term plan for lowering our deficit and being fiscally sound will raise confidence in our debt and help the US keep its AAA credit rating from the various credit rating firms like Moody’s and Standard and Poor’s. This will help investors continue to see the US as the ultra-safe haven for their money, which is a key aspect of our continued economic recovery.

 

Speaking of our economic recovery, there was actually some good news last week in the housing industry, as Building Permits and New Construction Starts were reported better than expected. While this is only one small piece of the puzzle, we’ll take every bit of positive news we can.

 

With that being said, interest rates continue to be at their lowest levels ever. A client looking to purchase or refinance a home with a thirty year fixed conventional mortgage can expect an interest rate of approximately 4.75% as of Monday. While this is a slight quarter percent jump from last week’s low of 4.5%, this is still a huge bargain for anyone looking for a home loan. It astounds me that we still have clients calling up who haven’t already refinanced their home when their rate is in the fives or even occasionally the six’s. The savings they get on a yearly basis is often in the thousands of dollars, not to mention the tax-benefit. Speaking of which, I thought I would bring up a conversation I recently had with a friend who wanted to pay off their thirty year mortgage as quickly as possible. He had a plan to pay it off in seven years by doubling up on payments and refinancing to a fifteen year. While this may be best for some, I would highly recommend that anyone considering paying off their mortgage talk to their CPA or tax specialists to determine if it’s really in their best financial interest. Well that’s it for this week, until next, Be Blessed and Numbers 6:24-26 be on you.

July 18th Moorings

Hello and welcome to this week’s edition of Moorings, your source for local and national news from the Mortgage Industry. Let’s jump right in to rates which have come down yet again to 4.5% for a thirty year fixed conforming loan. This is an exceptionally good deal for anyone looking to purchase or refinance a home. Rates have only been this low a handful of times in the history of the mortgage industry and anyone who doesn’t take advantage of this opportunity will surely regret it. As to why rates are so low, we jump over to the national economic news.

Obviously the biggest story on the news of late has been the ongoing struggle between democrats and republicans to agree or not to agree on whether or not the debt ceiling of the United States should be extended. In the simplest terms, this is a limit as to how much debt the country can go into, and congress must approve the end amount of debt allowed. With major economic issues like this that negatively impact the economy, investors move their money from riskier arenas like the stock market into more secure investments like mortgage backed securities. With this move come lower interest rates as there are more buyers of these packaged securities and therefore less risk.

On a separate topic, I wanted to discuss a rarely used loan program called Pledged Asset. This is a great program for borrowers looking to purchase or refinance higher value homes, whose assets and income may not be your standard W-2 income. A good example of a use for this program is a client with a great deal of money in stocks, bonds, mutual funds, etc., but they don’t necessarily have tons of cash on hand to buy a home. By utilizing this creative loan program, the client can “pledge” their assets that are tied up (and not normally utilized) as collateral when purchasing a home. This saves a client from needing to make liquid their investment portfolio which will inevitably make them more money than cash. In addition, a client can pledge their assets for another person such as a child or parent, you can get financing up to 90%, mortgage insurance may not be required in some cases, and you can defer capital gains since the investments are staying in place. Loan programs like this are designed for a borrower with a more complicated asset and income structure and it makes it all that more important for such a client to work with an experienced mortgage banker. When you are discussing making a huge investment such as a personal residence or vacation home, make sure your mortgage advisor knows the ins and outs of the guidelines of your mortgage program. At the end of the day it’s your name on the mortgage and you are responsible for it, so be comfortable with the decisions your making and the contracts you are signing. Well that’s it for this week, until next, Be Blessed and Numbers 6:24-26 be on you.