This weeks commentary...six reports that could affect rates

This Week’s Market Commentary

by admin on August 27, 2012

This week brings us the release of six economic reports that may affect mortgage rates along with two Treasury auctions and a Fed conference that has several key speakers. There is nothing of relevance scheduled for tomorrow, so look for the stock markets to drive bond trading and mortgage rates tomorrow. With data and related events scheduled every other day of the week, it is likely to be an active one for mortgage rates.
The Conference Board will post their Consumer Confidence Index (CCI) for August late Tuesday morning. This index measures consumer sentiment about their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling more confident in their own finances, they are more apt to make a large purchase in the near future, fueling economic growth. A decline in confidence would indicate that surveyed consumers probably will not be buying something big in the immediate future. That would be a sign of economic weakness and should drive bond prices higher, leading to lower mortgage rates Tuesday. It is expected to show a reading of 65.5, which would be a slight decline from July’s 65.9. The lower the reading, the better the news for bonds and mortgage rates.
Wednesday has two reports scheduled that can potentially influence mortgage pricing. The first is the first revision to the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. This reading is the second of three that we see each quarter. Last month’s preliminary reading revealed that the economy grew at an annual rate of 1.5%. Wednesday’s revision is expected to show that the GDP actually rose only 1.6%. A smaller than expected reading should help lower mortgage rates Wednesday, especially if the inflation portion of the release does not get revised higher. There will be a final revision issued next month, but it probably will have little impact on mortgage rates since traders will be more interested in the current quarter’s activity.
The Federal Reserve will release its Beige Book report at 2:00 PM ET Wednesday. This report details current economic conditions in the U.S. by Federal Reserve regions. It is believed to be a key source of data when the Fed meets for their FOMC meetings and is usually released approximately two weeks prior to each meeting. If it reveals any significant surprises or changes from the past, we may see movement in the markets and mortgage pricing as analysts adjust their theories on the Fed’s next move. Most likely though, it will be a non-event and will not lead to a noticeable change in mortgage rates.
July’s Personal Income and Outlays report will be released early Thursday morning, giving us a measurement of consumer ability to spend and current spending habits. It is expected to show an increase of 0.3% in income and a 0.5% increase in spending. Since consumer spending makes up over two-thirds of the U.S. economy, weaker than expected numbers would be considered good news for the bond market and mortgage rates.
Friday is a multi-release day with August’s revision to the University of Michigan’s Index of Consumer Sentiment and last month’s Factory Orders data both being posted late Friday morning. The sentiment index helps us track consumer willingness to spend similarly to Tuesday’s CCI. It is expected to show no change from August’s preliminary reading of 73.6. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates because waning confidence usually means that consumers are less likely to make large purchases in the near future. As with the CCI index, the lower the reading the better the news for bonds and mortgage rates.
July’s Factory Orders data measures manufacturing sector strength and is similar to last week’s Durable Goods Orders, but includes orders for both durable and non-durable goods. It is expected to show a 2.0% increase in new orders. A smaller than expected rise would be favorable for bonds, but I don’t see this data causing much movement in rates unless its results vary greatly from forecasts since the big-ticket products portion of the report was released last week.
Also worth mentioning are a couple of Treasury auctions that may affect bond trading and mortgage rates this week along with a speaking engagement by Fed Chairman Bernanke. The two relevant Treasure auctions are Wednesday’s 5-year Note and Thursday’s 7-year Note sales. Results of the auctions will be posted at 1:00 PM ET each day. If investor interest is strong in the auctions, we can expect the broader bond market to rally and mortgage rates to move lower. However, lackluster demand could lead to bond selling and higher mortgage rates Wednesday and Thursday afternoons.
Mr. Bernanke will be speaking Friday morning at the Jackson Hole Fed conference in Wyoming. He will be addressing current and future economic conditions, so his words are likely to influence the markets and mortgage pricing Friday. Also scheduled to speak are the European Central Bank and International Monetary Fund Presidents. What they will say and how it will impact the markets is difficult to predict, but there is a high probability of the markets reacting heavily to their words, so the event needs to be watched.
Overall, I believe it is going to be a fairly active week for the financial and mortgage markets. The calmest day will likely be tomorrow, but choosing the best candidate for the most important day isn’t as easy. Wednesday has two economic reports scheduled along with the 5-year Note auction, but Friday’s Jackson Hole conference can be a market mover by itself without the two economic reports that are scheduled that day. So, let’s go with Wednesday AND Friday as the key days of the week. Since it looks to be another active week, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate.

This Week’s Market Commentary

by admin on August 13, 2012

This week brings us the release of seven pieces of economic data that are relevant to the bond market and mortgage pricing. There is no relevant data scheduled for release today, so look for the stock markets to drive bond trading and mortgage rates. There is data scheduled for every other day with three of the four remaining days having multiple reports being posted. This means we are likely to see plenty of movement in the markets and mortgage rates this week.
Tuesday has two of the week’s reports scheduled to be posted. July’s Retail Sales data is the first and one of the highly important reports scheduled this week. This data is very important to the financial markets and mortgage rates because it helps us measure consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any data related to it can cause a fair amount of movement in the markets. A smaller than expected increase would indicate that consumers are spending less than previously thought, pointing towards further slowing in the economic recovery. This is good news for the bond market and mortgage rates as it eases inflation concerns and makes long-term securities such as mortgage-related bonds more attractive to investors. Current forecasts are calling for an increase of 0.3%.
One of the week’s key inflation indexes will also be posted early Tuesday morning. July’s Producer Price Index (PPI) will give us an indication of inflation at the producer level of the economy. There are two readings in the report- the overall index and the core data reading. The core data is more important because it excludes more volatile food and energy prices that can change significantly from month to month. Current forecasts call for a 0.2% rise in the overall reading and a 0.2% increase in the core data. A larger increase in the core data could push mortgage rates higher Tuesday morning. If it reveals weaker than expected readings, we may see mortgage rates improve as a result. That is assuming that the Retail Sales data doesn’t show a surprise increase or decline.
The PPI will be followed by the even more important Consumer Price Index (CPI) early Wednesday morning. The Consumer Price Index is one of the most important reports we see each month as it measures inflation at the consumer level of the economy. As with the PPI, there are also two readings in the report. Current forecasts call for a 0.2% increase in the overall index and a 0.2% rise in the core data reading. Declines in the readings, especially in the core data, should lead to lower mortgage rates as it would mean inflation is still not a threat to the economy. However, stronger than expected readings will likely cause an increase to mortgage pricing Wednesday
July’s Industrial Production is Wednesday’s second report with a release time of 9:15 AM ET. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important to the markets and can influence mortgage rates slightly. Current forecasts are calling for a 0.6% increase in production, indicating some strength in the manufacturing sector. Good news for the bond market and mortgage rates would be a decline in output, signaling sector weakness.
Thursday has only one monthly report scheduled for release. July’s Housing Starts will be posted at 8:30 AM ET Thursday. This report gives us an indication of housing sector strength and future mortgage credit demand. However, it isn’t considered to be of high importance to the bond market or mortgage pricing and usually doesn’t cause much movement in mortgage rates unless it varies greatly from forecasts. It is the least important of the week’s reports and is expected to show a slight increase in construction starts of new homes. The lower the number of starts, the better the news for the bond market, as it would indicate a weaker than expected housing sector.
Friday also has two pieces of data that are relevant to mortgage rates, but both come during late morning trading. The University of Michigan will release their Index of Consumer Sentiment for August at 9:55 AM Friday. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases. This helps fuel consumer spending and economic growth. By theory, a drop in confidence should boost bond prices, but this data is considered moderately important and carries much less significance than some of the week’s other reports. Analysts are expecting to see a reading of 72.2, which would be a slight decline from July’s revised reading of 72.3. The smaller the reading, the more concerned consumers are in their own financial situations and the better the news for mortgage rates.
The final report of the week will come from the Conference Board, who will give us its Leading Economic Indicators (LEI) for July. This index attempts to measure economic activity over the next three to six months and is considered to be moderately important. A higher than expected reading is bad news for the bond market because it indicates that the economy may be strengthening more than thought. However, a weaker than expected reading means that the economy may not grow as much as predicted, making stocks less appealing to investors. This also eases inflation concerns in the bond market and could lead to slightly lower mortgage rates Friday if the stock markets remain calm and the day’s other data does not show any surprises. It is expected to show an increase of 0.2 % in the index, indicating minor economic growth over the next couple of months. It will take a sizable difference between forecasts and its actual reading for this report to influence mortgage rates.
Overall, I am expecting Tuesday or Wednesday to be the most important days of the week. Tuesday’s Retail Sales report and Wednesday’s CPI are the two single most influential reports. Since Tuesday has the Retail Sales and PPI reports and consumer level inflation is not expected to be an immediate threat, I am leaning towards it as the day that we will see the most movement in mortgage rates. However, Wednesday is also a key day. I am expecting to see the least movement tomorrow, unless the stock markets stage a significant rally or sell-off. With so much going on this week, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate.

Can Baby Boomers Boost the Market?

Baby Boomers – those between the ages of 47 to 65 – are in the best position to buy real estate that they’ve been in in years, according to a spokesperson for the National Association of Realtors, and could help revive the real estate market.
According to the Housing Affordability Index, affordability is at an all-time high, and many baby-boomers already have solid home equity to rely on.
The spokesperson said in an AOL Real Estate article that “the roadblock is really with first-time buyers… and many of them are being thwarted by credit issues.”
The article cites two major reasons that the baby boomer generation may boost the real estate market: that home equity, and a desire for ease of living factored into their real estate purchases.
A survey done by Met Life Mature Market Institute and National Association of Home Builders showed that 61% of those moving in to a 55+ community cited room layout as a decision-maker, as did 62% of those not moving into such a community, but in non-age-restricted communities. The vast majority of the generation falls in the second category, but the percentages are almost identical.
Room layout and the ease of living asks are not shared as a top priority with younger and first-time buyers.

5 Reasons it’s Time for a Home in 2012

It’s true that money can’t buy happiness, but knowing that the value of your assets will grow over time does give you peace of mind.

Negative press is leaving some home buyers stuck on the fence, but here are a few reasons to climb down.

1. In the long run you come out ahead; in the short run you enjoy your home. The paper value of your home won’t rise much in the next couple of years. But if you want a home where you can raise your children or retire for the rest of your life, the paper value will rise significantly, or probably double or triple during that time.

2. The recent survey by the Hartford/MIT Lab’s Home for a Lifetime survey shows that half of all homeowners prefer their current home for retirement. Another 10 percent may choose to retire there, but aren’t yet sure.

3. A home is like a savings account. Your initial costs of home buying will come back to you many times over during the life of your mortgage. Your stake in the home builds every month. You’ll have more than rent receipts in the future.

4. Mortgage payments are fixed; rental payments rise. On a fixed-rate mortgage, you know what your payment will be each month for years to come. (As inflation rises, you’ll be making those payments with less expensive dollars.)

5. Apartment rents through the third quarter of 2010 were up 2.4 percent nationwide for the year and up twice that amount in larger cities. Nice apartments were hard to find because the national vacancy rate is the lowest since 2006, according to a study by real estate research firm Reis, Inc.

There are many more reasons for having a home of your own, reasons that have little to do with the financial aspects.

Stability and community. You get to know the neighbors. Your kids won’t have to change schools. They can keep their friends. You get to know their teachers and which parks, neighborhood facilities and merchants are best for you. Studies show that as people develop positive relationships with neighbors, they have more happiness and less stress.

You get to be the boss. Dealing with a landlord and negotiating repairs are hassles you won’t have to deal with. As the boss of your own place, you can paint, renovate and redecorate as much as you want and in any color or style you want.

Tax Time Preparation: The Mortgage Interest Deduction

It’s that time again when Uncle Sam picks your pocket for taxes and, if you are writing out a check this year, you might want to ask yourself if a nice, fat mortgage interest deduction would come in handy next year.
For many people it certainly will. Mortgage interest is tax deductible. This means it is one of the expenses that reduces the amount of income on which you pay taxes.
Many, if not most, people who do not own houses, also do not itemize their deductions. That makes sense because if they added up all their potential deductions, the deductions would not be greater than the standard deduction. In 2011, the standard deduction for single people is $5,800. The standard deduction for married people is $11,600.
The beauty of the mortgage interest deduction is that it allows you to deduct all the interest you pay on your home loan. During the first years you pay on a home loan, nearly everything you pay is interest — up to 75 percent of your payment.
That nice deduction can reduce the taxes you owe, while allowing you to live in the house you want.
In this economy, owning a home also offers you some subtle protection from inflation. Inflation is an increase in the general level of prices for goods and services over time. So you notice that your grocery bill is going up and your dollars buy less, that is inflation, according to investopedia.com
According to inflationdata.com, in 2011 inflation was trending well over 3 percent while mortgage interest rates were the lowest in history at about 4.3 percent (30-year fixed.)
If you buy a home this year, and inflation continues to increase, you’ll soon be paying off your home with cheaper dollars. Your food will cost more; your luxuries will cost more; rent will cost more. But your mortgage is going to stay the same.
Meanwhile, inflation will also have some effect on home prices, forcing prices up. Right now, in most parts of the country, home prices are low because there are a lot of houses on the market and fewer buyers than five years ago. That means, right now you can get a lot of house for fewer dollars. In coming years, however, as the supply of houses for sale decreases, the pressure of inflation plus a reduced supply of houses, will force home prices up. In 10 years, your home purchase today will be a bargain and you will be living in a home you love while paying prices locked in the past!

Common First Time Homebuyer Mistakes

Many first-time homebuyers make simple and common mistakes that are easily avoidable.
They face multiple challenges anyway, such as finding the right home, the right agent, getting approved for a mortgage, and staying within their budget. By avoiding these common mistakes, the process of buying a home can be much less stressful.

1. Overlooking extra costs of homeownership
While some see themselves as ready for homeownership once they can afford a mortgage payment, it is important to remember the other fees that come along with owning a home. Property taxes, home owners association fees, maintenance, higher water and electrical bills, and property insurance are among the extra costs of owning a home, and should be calculated into your budget.

 2. Not getting preapproved
It is very important to get preapproved for a loan before you go out searching for the perfect place. That way, you will be making financially sound decisions versus unrealistic emotional ones as to what you can afford.

3. Spending your entire savings on your down payment
This is one of the most common mistakes first time homebuyers make. Homebuyers who put 20 percent or more down don’t have to pay for mortgage insurance when getting a conventional mortgage, which often translates into substantial savings on the monthly payment. However, it is smarter to keep your rainy day savings intact instead.