Mortgage Market Update from Our Expert

You all know by now that I like to keep you well informed on the goings on of the mortgage market by keeping you posted with what Monica Jones, Certified Mortgage Planner with RPM Mortgage, has to say about it.  Below you’ll find her notes on the market for this week.

From the first time home buyer to the savvy investor – from the seller with equity to the seller underwater and needing options – I am here for you.

 

 

 

 

Last Week in Review: Our hearts and minds – as well as the markets – were moved by the tsunami in Japan and unrest in Saudi Arabia. Read how both impacted Bonds and home loan rates!

Forecast for the Week: Double dose after double dose hits the news wires this week. Find out what to watch and why!

View: Discover the pros, cons, and interesting tidbits about Daylight Saving Time, which begins this week.

Last Week in Review

“And now… the rest of the story” – Paul Harvey. With his famous line, Paul Harvey pointed out for years that there’s more to every story – and often those hidden details influence what happened. With that in mind, let’s look at the “rest of the story” behind last week’s news items, which had alternating impacts on Bond prices and home loan rates.  First, let us start by sending our thoughts and prayers to the families affected by last week’s earthquake and tsunami in Japan. The earthquake was a magnitude of 8.9 – the strongest in 140 years. The earthquake in Japan and its damage created some counterintuitive market reactions. One would think that US Treasuries and Mortgage Bonds would have traded much higher, as often is the case with devastating natural events that drive money into “safe haven” trades. But that wasn’t the case. Why? The answer is that buying of Treasuries and Mortgage Bonds as a safe haven trade was offset by the Japanese selling some of their own massive holdings of Treasuries and Mortgage Bonds, in order to repatriate money back to their country during the time of emergency. Considering that Japan is the second largest holder of U.S. debt at $877 Billion, selling just a tiny position of their holdings has an impact on Bond prices. In addition, Bond prices traded in very volatile fashion last week after getting jockeyed around on news out of Saudi Arabia that police had opened fire on protesters with rubber bullets. Let’s look at how this influenced the markets in a different way than one might at first imagine. Like other recent uprisings in the Middle East, Saudi protesters are looking for more democracy, the right to elect public officials, greater civil rights, freedom of expression, more women’s rights and a higher minimum wage. Interestingly, however, oil fell last week, despite the news. Why? Shouldn’t unrest in Saudi Arabia – the world’s largest oil producer, push prices higher? Yes, but that news was offset by the earthquake in Japan. That’s because Japan is a huge importer of oil… and the market senses that the earthquake and subsequent tsunami may create an economic slowdown and diminish the demand for oil. Seeing that Mortgage Bonds are lower – even in the face of weak Stocks and enormous uncertain global news – tells us that the gains in Bonds are not coming with a lot of conviction and Traders are selling into this strength. This is because a lot of headwinds remain for Bonds – like inflation abroad, rising government debt and continued QE2 purchases. This is a good example of why it is important to work with a mortgage professional that understands not only what was reported in the news, but also how the many cross currents may have alternating effects on everything from Bonds, Stocks, Oil to the US Dollar.

Forecast for the Week

“Double dose!” is the phrase of the week, as we’ll see multiple reports this week focusing on the same segments of the economy:  We’ll start off with some big news Tuesday, when the Federal Reserve holds its FOMC meeting and releases its Policy Statement later that afternoon. As always, what the Fed says about the economy, inflation, and its Quantitative Easing program could have an impact on home loan rates. There’s a double dose of real estate news with Wednesday’s release of data on Housing Starts and Building Permits in February. Check back with me on Wednesday to get the breakdown of how the news actually arrived! There’s also a double dose of manufacturing news. Tuesday’s Empire State Index looks at New York State’s manufacturing sector and is a good gauge of manufacturing overall, while on Thursday we’ll also see another important manufacturing report in the Philadelphia Fed Index. A double dose of inflation news also comes our way this week with Wednesday’s Producer Price Index Report, which highlights inflation at the wholesale level, and Thursday’s Consumer Price Index Report, measuring inflation for consumers like you and me! Remember: The Fed is intent on creating inflation, which is unfriendly to home loan rates, and signs of inflation from these reports could be unfavorable for rates. Thursday we’ll get a read on employment with the weekly Initial Jobless Claims Report. Initial Jobless claims rose 26,000 in the latest week to 397,000, which was above expectations but still below that psychological barrier of 400,000. Finally, on Thursday we’ll see a double dose of manufacturing data with the release of reports on Capacity Utilization and Industrial Production in February. The capacity utilization rate provides an estimate of how much factory capacity is in use. If the utilization rate climbs too high it can lead to inflationary bottlenecks in production. The Federal Reserve watches this report closely and decides how to set interest rates on the basis of whether production constraints are threatening to cause inflation. 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 by the arrows in the chart below, Bond prices experienced some up-and-down volatility last week, but ended the week near where they began – meaning home loan rates are still near historic lows. So what should you do if you or someone you know is in the market for a new home? The bottom line is that even if housing were to drop a little further in some areas, the affordability coming from today’s rates serves as a backstop against any moderate price reduction. Remember, housing will likely be in a much better position in the second half of the year and at that time rates could be a bit higher. Now’s the time to take advantage of the combination of low rates and affordable housing. Call or email today to get started. Chart: Fannie Mae 4.0% Mortgage Bond (Friday Mar 11, 2011)

Sping Forward Beginning March 13

Daylight Saving Time (DST) begins on Sunday, March 13, 2011. The way we refer to time zones also changes. For example, Eastern Standard Time (EST) becomes Eastern Daylight Time (EDT).

But remember, some areas of the United States don’t use DST, such as Arizona, Puerto Rico, Hawaii, the US Virgin Islands and American Samoa.

Benefits of Daylight Saving Time

Despite some concerns, Americans overwhelmingly like Daylight Saving Time. There is simply more sunlight in the evenings to enjoy the outdoors and get things done. Plus, additional hours of daylight can help save energy on a national scale – as much as 100,000 barrels of oil per day according to some estimates.

And brighter is safer. Studies have shown that the DST shift reduces traffic accidents. Additionally, a study by the US Law Enforcement Admin also determined that crime is consistently lower during DST, with violent crimes down as much as 10% to 13%. For many crimes, like mugging, darkness is a factor–so more light in the evening hours reduces these types of crimes.

Cons of Daylight Saving Time

Not everyone benefits from DST. For example, many farmers say that DST has a negative impact on their livestock’s natural schedules. The airline industry also reports that it costs millions of dollars to adjust time schedules – and even then, airlines report numerous problems with international flight connections during the transition time since DST isn’t followed uniformly around the world.

Interesting DST Facts

• A man was actually able to avoid the draft for the Vietnam War using a Daylight Saving Time loophole. When he was born, it was just after midnight, DST. When he was drafted, he successfully argued that in his home state of Delaware, standard time – not DST – was the official time for recording births. So he was technically born on the previous date – which had a much higher draft lottery number – and he was able to avoid being drafted.
• In September 1999, the West Bank was on Daylight Saving Time, while Israel had switched back to standard time. A group of West Bank terrorists prepared some timed bombs. Unfortunately for them, they misunderstood the time change and the bombs exploded early – killing the terrorists themselves rather than the intended victims, two busloads of innocent citizens.
• In the 1950s and 60s, each state and locality was permitted to choose start and end DST dates as they desired. During 1965, Minneapolis and St. Paul – which are considered one metropolitan area – didn’t agree on start dates, and for a period of time, these Twin Cities had a one hour time change between them. And on one Ohio to Virginia bus route, passengers technically had to change their watches seven times in 35 miles!
• To keep to their published timetables, Amtrak trains cannot leave a station before the scheduled time. So when the clocks “fall back” in the fall, all trains that are running on time actually stop at 2 am – the official time of DST change – and wait one hour before resuming their routes. In the spring, the routes instantaneously become one hour behind schedule, but they just keep going and do their best to make up the time.

Finally, since many electronic devices and computer programs are set to adjust to DST based on the old dates, they may not change automatically on March 13. So, you’ll want to double-check all of your devices and confirm that the time is correct.
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Economic Calendar for the Week of March 14-18, 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 March 14 – March 18

Date	ET	Economic Report	For	Estimate	Actual	Prior	Impact
Tue. March 15	08:30	Empire State Index	Mar	17.0		15.43	Moderate
Tue. March 15	02:15	FOMC Meeting	Mar				HIGH
Wed. March 16	08:30	Housing Starts	Feb	551K		596K	Moderate
Wed. March 16	08:30	Building Permits	Feb	570K		562K	Moderate
Wed. March 16	08:30	Producer Price Index (PPI)	Feb	0.6%		0.8%	Moderate
Wed. March 16	08:30	Core Producer Price Index (PPI)	Feb	0.2%		0.5%	Moderate
Thu. March 17	10:00	Index of Leading Econ Ind (LEI)	Feb	0.9%		0.1%	Low
Thu. March 17	09:15	Capacity Utilization	Feb	76.5%		76.10%	Moderate
Thu. March 17	09:15	Industrial Production	Feb	0.6%		-0.1%	Moderate
Thu. March 17	08:30	Core Consumer Price Index (CPI)	Feb	0.1%		0.2%	HIGH
Thu. March 17	08:30	Consumer Price Index (CPI)	Feb	0.4%		0.4%	HIGH
Thu. March 17	08:30	Jobless Claims (Initial)	3/12	387K		397K	Moderate
Thu. March 17	10:00	Philadelphia Fed Index	Mar	28.0		35.9	HIGH

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