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: 

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.

Japanese Candlestick Chart

 

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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Home Loan Rates Caught in Tug-O-War

As you know, I like to keep you posted on the mortgage market via news from the desk of Monica Jones- Certified Mortgage Planner with RPM Mortgage.  In my opinion, she’s one of the best in the business and this is what she has to say 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.

 

 

 

 

 

 

 

“Fear comes from uncertainty,” wrote the poet William Congreve. Last week, however, the markets were moved by fear and by uncertainty that were unrelated. On the one hand, unrest in the Middle East drove up Oil prices and pushed investors into the safety of Bonds – while on the other hand, fear of inflation limited the gains that Bonds experienced. To see how those elements impacted home loan rates, let’s take a deeper look at each.

First, the global unrest in the Middle East continues to impact the markets. The protests that started a few weeks ago in Tunisia and Egypt have now spread to Bahrain, Yemen and Libya. Libya is of particular concern to the markets, since it is the largest holder of oil reserves in Africa.

With the thought of Oil fields at risk and with no foreseeable resolution in the near term, Oil spiked as much as $12 a barrel higher last week – climbing over the mark of $100 per barrel. Remember, high oil prices aren’t good for anything; they’re tough on the economic recovery, and they’re inflationary. And in terms of your wallet, the recent spike in oil has only just begun to translate to pumps across the country, so you can expect to see higher prices in the coming weeks.

In addition to higher Oil prices, the unrest is creating fear and doubt in Traders’ minds about what might happen. And when Traders are uncertain, they tend to move money into the relative safety of Bonds, which offer lower returns but also lower risks. This flood of money into Bonds – including Mortgage Bonds – helps prices and home loan rates improve. And sure enough, last week Mortgage Bonds traded higher, as protests and uncertainty permeated throughout the Middle East.

On the other hand, those gains in Bonds have been limited by fears of inflation down the road. That’s because investors demand a higher yield now to offset their concerns that future inflation will eat into their returns. That was evidenced by the tepid buying demand in last week’s Treasury auctions. And as the economy continues to slowly expand and inflation fears grow, rates will gradually move higher over time.

The bottom line is that global unrest has been a driving force behind improvement in the Bond market… and that it may continue to do so in the coming weeks. But at the same time, it’s important to remember that those gains are fleeting and have even been limited by inflation fears – so the positive picture for Mortgage Bonds and home loan rates won’t last long.

Now’s the time to look at your unique situation and take action. It only takes a few moments to sit down and see how the national and international news may help you benefit from a refinance or the purchase of a new home. Call or email today to get started. Or forward this newsletter on to someone you know who may benefit from today’s historically low rates.

Forecast for the Week

In addition to monitoring the unrest in the Middle East, we have a big week of economic reports on our hands – with the big news coming on Friday! Here’s a highlight of what to watch:

  • The week starts off Monday morning with reports on Personal Spending and Personal Income, as well as Pending Home Sales. The Pending Home Sales report comes after last week’s Existing Home Sales release, which came in better than anticipated… but the National Association of Realtors who reports all these numbers is under fire for possible overestimation in the past few years.
  • On Monday, we’ll also see the Personal Consumption Expenditures (PCE) Index, which is the Fed’s favorite gauge of inflation. Remember, inflation fears have grown and have been limiting the gains that Bonds experience. In fact, the inflation reading in last week’s GDP release was hotter than previously reported – and that coincides with the recent Consumer Price Index trend, which saw a hot 0.4% month-over-month gain during each of the past two months. So the markets and the Fed will definitely be keeping a close eye out for the PCE report this week!
  • Manufacturing reports will also hit the newswires this week. On Monday, we’ll see the Chicago PMI, which reports on manufacturing in Chicago and is a good indicator of overall economic activity. Then on Tuesday, we’ll see the ISM Index, which is the king of all manufacturing indices and is considered the single best snapshot of the factory sector.
  • The big topic of the week will be employment. First up is the ADP National Employment Report on Wednesday, which measures non-farm private employment, followed by another round of Initial Jobless Claims on Thursday. In last week’s report, Initial Jobless Claims were reported lower than the expectations. Normally, this would have applied pressure on the Bond market, but again the unrest in the Middle East is trumping this data.
  • Finally, the busy week culminates with the highly anticipated monthly Jobs Report on Friday. This report features new data regarding job growth 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.

The important thing to notice in the chart below is the direction on the right side of the chart. As you can see, Bond prices moved upward, which is good news for home loan rates. One of the major reasons for this movement was the ongoing unrest and uncertainty in the Middle East, which prompted Traders to move money into the relative safety of Bonds.

As a result, now is an ideal time to take advantage of the historically low home loan rates. If you or someone you know is looking to refinance or purchase a home, call or email to find out how you can benefit.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Feb 25, 2011)
Japanese Candlestick Chart

 

Don’t Fight the Fed… Words from our Expert

As you know, I like to keep you posted on the mortgage market via news from the desk of Monica Jones- Certified Mortgage Planner with RPM Mortgage.  In my opinion, she’s one of the best in the business and this is what she has to say this week:

“You sound like a broken record…” or so the cliché goes. And lately that saying certainly applies to the phrase the media has been repeating recently: Don’t fight the Fed.

So what does “Don’t fight the Fed” mean exactly, especially when it comes to home loan rates? Let’s answer that by going back a few months. In early November, when home loan rates were at all time lows, the Fed announced their plan to purchase $600 Billion in Treasuries through mid-2011. Dubbed Quantitative Easing 2 or QE2, the Fed had three goals:

  1. Boost Stock Prices
  2. Lower unemployment
  3. Create inflation

After just two and a half months, an argument could be made that the Fed has been somewhat successful so far. Stocks are higher, the unemployment rate has improved (though more improvement is certainly needed), and as we saw last week inflation has ticked higher.

Both the Consumer Price Index (CPI) and Producer Price Index for January were hotter than expected and, as the chart shows, the more closely watched Core CPI, which strips out food and energy, came in at the highest level since March 2010. And we’re not just seeing hotter inflation here. Reports last week showed inflation is heating up in China and England, too.

So what does all of this mean for home loan rates? Inflation is the arch enemy of Bonds and home loan rates, and usually any hints of inflation cause both to worsen. Yet, you may be wondering why Bonds and home loan rates improved slightly last week. There are two things to note: First, while last week’s inflation data was a touch hotter than expected, overall, it’s still on the tame side. Second, last week’s Initial Jobless Claims was a disappointment, suggesting that the labor market continues to improve but at a very choppy and sluggish snail’s pace.

The bottom line to remember is the phrase we started out with: Don’t fight the Fed. If the Fed wants to create inflation as one of its three-fold goals for QE2, it will likely succeed…and Bonds and home loan rates will likely worsen over time as a result. That’s why if you have been thinking about purchasing or refinancing a home, this is a great time to get started! Call or email me if you have any questions at all – I’m always happy to talk to you!

 

 

 

 

 

 

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.


Tips for First Time Homebuyers

Buying your first home may seem daunting, but it doesn’t have to be. With a few helpful tips, you’ll be on your way to purchasing a home in no time!

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.

What Makes For A Winning Offer?

 

 

 

1. Get pre-approved

Before writing an offer – and ideally before you even begin your search – meet with your bank or other financial advisor; the one who will be giving you your mortgage, and get pre-qualified or pre-approved. When it’s time to put forth an offer, the seller will know it’s serious.

As you can see by reading other posts on my blog, I often refer Monica Jones with RPM Mortgage as excellent Certified Mortgage Planner.  You can actually apply for your pre-approval online at MortgagesByMonica.com.

2. Understand the local context

List prices are often subjective. Look to your Better Homes and Gardens® Real Estate sales associate to advise you on pricing strategy. In the end, it’s important that you know the real estate situation yourself to determine if the property is fairly priced, based on comparable, recently sold properties. There’s no rule of thumb that says going in under asking is expected. Market conditions will dictate the selling price. Keep in mind that homes will also occasionally be under-priced to attract multiple offers. This circumstance may call for a bid over the initial asking price.

3. Understand and adjust to the seller’s interests

Asking the right questions prior to writing an offer can often make the difference between an accepted offer and a stalled negotiation. Some contract terms may be of great significance to the seller, whereas only a slight inconvenience for you. Should the seller want to rent the place back, for example, for a few days or weeks after escrow, your written flexibility on the move out/in date could close the deal in your favor.

4. Make a strong deposit part of your offer

You’ll want to submit an earnest money deposit when writing an offer, payable to a reputable escrow company, to be delivered by your agent no more than three business days after the acceptance of the offer. Even when delivering an offer below asking price, offer a large deposit if possible, and it will pay dividends in the end. Down payment strategies however may vary. In some areas, a smaller deposit is the norm. Regardless of location, a higher deposit will most likely strengthen your negotiating power.

5. Provide an appropriate time for the seller’s response

Time is of the essence once you decide to take the plunge, especially regarding a newer listing in which the risk is high that other buyers will potentially submit offers. Typically, the seller is given until 5PM on the third day from receipt of the offer to respond, unless you write in a different date and time. If the offer is strong, speed up the response time. Your Better Homes and Gardens Real Estate sales associate can advise you on what strategy will work best.

Prepared Home Buyer 101

In today’s market, potential home buyers need to be prepared for the stringent guidelines enforced by mortgage companies.  If you have any concerns about your ability to qualify for financing contact Monica Jones today at MortgagesByMonica.com or call her at 925-339-1764.  She is always my first go-to person in the lending arena, and she will happily guide you through the process of credit repair.

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.

Mortgage Rate Update!

One of the many ways I strive to serve my clients is by surrounding myself with an outstanding team of professionals with your best interest in mind.  I have the utmost respect for Monica Jones as an expert in her field.  Below is a a mortgage rate update from Monica.

The message to take home here, is that home ownership is affordable, more-so now than ever before!  Take a look at the estimated payment per $1,000 loaned for a 30 year fixed mortgage!  That means if you’re looking for $200,000 loan your payment will only be around $1,028 per month! Or just $514 per month for a $100,000 loan! (There’s a good chance that’s less than your rent)

Even if your credit isn’t great, Monica and I may be able to work with you to improve your Fico scores enough for you to qualify.  Call me today!

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.

Mortgage Interest Rates for Fixed and Variable Rate Mortgages* as of Friday, 28th January, 2011:

Term

Conforming

APR

Payment per $1,000

Jumbo

APR

Payment per $1,000

ARM

Reset Term

30 Year Fixed

360

4.625%

4.663%

$5.14

4.875%

4.892%

$5.29

15 Year Fixed

180

4.375%

4.412%

$4.99

4.500%

4.516%

$5.07

5/1 ARM

360

3.750%

3.786%

$4.63

4.125%

4.141%

$4.52

60

3/1ARM

360

3.250%

3.285%

$4.35

3.625%

3.640%

$4.56

36

*rates are subject to change due to market fluctuation and borrower’s eligibility 

Why have I seen lower rates advertised on TV? Rate Lock Duration

Lock durations can vary from mortgage financing, but most lenders lock in the interest rate for 60 days from the date the loan application is submitted.  As long as the loan is closed within that lock-in period, the lender honors the agreed upon interest rate.

Some consumers are misled by advertising that quotes unrealistically low rates based on 15- or 30-day lock durations.  This is called ‘short-pricing.’  The lender basically knows the borrower doesn’t have time to meet their conditions and have all the necessary paperwork in order withi that brief time period.  As a result, the lender is not obligated to honor the low rate that was listed in their advertising.

For simple refinance transactions, a 45-day lock-in period is more realistic.  For purchase transactions, which are typically much more complex, you’re much safer going with a 60-day lock, even though the interest rate might be a little higher than the rate you see quoted on billboards and the internet.

Borrowers should make sure they have a written rate lock agreement, and allow themselves a reasonable amount of time to close their loan.  Monica prefers to lock all clients as soon as their application is filed, rather that gamble with predicting short-term interest rate movement.  My team and I focus more on assisting clients with long-term goals and management of their mortgage debt to secure strong  financial future.