When consumer spending slips, it can send shockwaves through the economy. Consumer spending, after all, makes up 70% of the economy.
The best measure of consumer spending data is Retail Sales, a monthly figure describing how much money Americans are spending, and where they're spending it.
Retail Sales unexpectedly fell in April and that would usually push mortgage rates lower on the prospect of a slowing economy.
Not so much this month, though, and the answer lies in the sector-by-sector breakdown.
Against expectations of a 0.4% increase, sales were down 0.2% in April. That downturn was clearly led by the performance (or lack thereof) in the Building and Garden Stores sector.
Its sales decreased by 2.3% month-over-month and the industry served as a parachute slowing down spending that is, otherwise, consistent and strong.
As we keep hearing in the press, housing is the most likely candidate to slow down the economy. It's not a surprise or a secret and markets are acutely tuned in to the sector.
So, as Building and Garden lays an egg and drags down the overall Retail Sales figures, markets shrug. Overall this week, mortgage rates are slightly higher, still recovering from the Fed's press release Wednesday.
Posted on May 11, 2007
Mortgage rates continued their climb higher last week as markets dealt with contradictory data about the health of the housing and the economy.
New Home Sales registered its biggest gain in 14 years while Existing Home Sales reached a 4-year low; and purchases of "big-ticket" items such as computers, appliances and furniture unexpectedly jumped while the inventory of homes for sale rose to 8.4 months.
It's enough to confuse even the most experienced investor.
As a result of the data, traders postponed their expectation for a Fed Funds Rate decrease and that helped push mortgage rates higher on the whole.
This week should provide little relief from mortgage rate volatility.
Tuesday's Consumer Confidence will reveal how consumers are feeling in the face of record-high gas prices and Wednesday's FOMC Minutes will unmask the inner discussions of the Fed's meeting earlier this month. Both can have a moderate impact on mortgage rates.
Friday, however, is the big day -- we'll get three major reports:
All three releases on the same day, and into a nervous market, give this the potential for an Economic Perfect Storm. Expect extreme rate volatility heading into, and through, Friday.
(Image Courtesy: Warner Bros)
Posted on May 29, 2007
This cartoon by Wiley applies to mortgages in 2007 like it did to stock trading in 1999.
The least expensive mortgage options aren't always the least costly. A quick look at the Sunday paper's Foreclosure Notice section can verify that.
The right loan at a fair price saves far money money than the wrong loan at any price.
Enjoy the long weekend everyone!
Posted on May 25, 2007
If you're in the process of buying a home and are working without a rate lock, take notice: over the past two weeks, mortgage rates have spiked to their highest levels since November 2006.
Your actual mortgage payment will be higher than you originally anticipated.
Depending on your preferred mortgage product, rates have increased by as much as one-half of one percent.
Mortgage experts expect the surge to continue over the next 30 days, at a minimum.
If your mortgage pre-approval is dated prior to May 9, call your lender and ask him to re-run it using today's rates and market conditions. If you don't have a pre-approval yet, today would be a good day to get one.
Posted on May 24, 2007
The graph at right shows the path of mortgage rates in May. The rate run-up continued yesterday.
After a fairly tame start, yesterday's action rapidly slipped away from mortgage rate shoppers beginning at 12:00 P.M. ET.
Many lenders responded by invoking their right to a mid-day reprice as well, with some adding as much as 0.25% to their prices.
A mid-day reprice signals rapid changes in mortgage market conditions. They don't happen everyday, but on days like yesterday when the market deteriorates as quickly as it did, lenders don't like the idea of offering interest rates that are "below market" rate.
When you consider that we're talking about banks, this is a concept that's fairly easy to grasp.
Unfortunately, though, when markets take the opposite course and improve rapidly, lenders are not so quick to mid-day reprice; they'll usually opt to just wait to embed the changes in the next morning's rate sheets.
Again, when you consider that we're talking about banks, this is a concept that's fairly easy to grasp.
It's the old adage: mortgage rates take the elevator up, but take the stairs down.
If you received rate quotes yesterday morning and did not lock, be sure to check back in today -- your quoted rate will be higher.
(Image source: Bankrate.com)
Posted on May 23, 2007
The graphic at right comes from The Wall Street Journal and it illustrates something that we all intrinsically know: Sub-Prime ARMs foreclose at a faster pace than all other home loan types.
When adjustable rate mortgages reach the end of their "fixed rate" period, some homeowners are unprepared for the upward-adjusting mortgage payments and that can lead to payment shock.
It doesn't mean that sub-prime mortgages are bad for all homeowners, however.
A little known fact: Nearly all sub-prime ARMs carry an initial fixed period of 24 months or more. This means that the sub-prime borrower has at least two years to make financial adjustments that include:
All of these actions help the homeowner ascend from sub-prime borrower status and into the realm of "prime" loans. It's the responsibility of the loan officer to help guide the way.
A trusted loan officer will help a sub-prime borrower to develop a financial plan and will hold them accountable. Then, as the borrower's status changes from "sub-prime" to "prime" because of better credit scores and payment history, the loan officer will remortgage the borrower out of his sub-prime loans and into a new, more favorable (fixed-rate, perhaps?) loan.
For borrowers who follow "the plan", their sub-prime loan will never adjust --they'll get rid of the loan before that two year period ends.
This is a terrific method for reducing sub-prime ARMs in foreclosure -- improve a homeowner's credit rating so they can leave the sub-prime world on their own accord and before their payment ever has a chance to change.
Posted on May 22, 2007
Mortgage rates moved substantially higher last week as traders reacted to Thursday's Initial Jobless Claims.
The amount of new unemployment filing dropped below 4-week trend line is now at its lowest levels in a year.
Fewer unemployment claims coupled with increasing employee wages raised fears of inflation and inflation nearly always pushes mortgage rates higher.
This week is practically devoid of data but there are two key housing releases -- Thursday's New Homes Sales and Friday's Existing Home Sales -- that could move mortgage rates.
In addition, as investors look for higher returns, they siphoning money from their bond investments and moving it into the stock market which has seemed unstoppable as of late.
This, too, is placing sell-side pressure on mortgage bonds.
As mortgage bonds sell off, it pushes mortgage rates higher for homeowners. Expect traders to ride last week's wave until Thursday, at least.
If you're shopping for mortgages today, it may be prudent to lock your rate and avoid fighting the current rate trend.
Posted on May 21, 2007
When buyers and sellers look for common negotiating grounds, it's common for the buyer to request home improvements to be made prior to the sale.
The request may be phrased in any number of ways:
The seller may agree to meet the buyer's demands, but making repairs to a home fixture, such as a roof, isn't convenient while a person still occupies a home.
And this is how the "repair credit" gets introduced into the contract. A repair credit is a dollar amount granted from the seller to the buyer to be used to cover the costs of the requested repair(s).
For a seller, repair credits offer a way to "pay for" the handyman work without actually going out of pocket; all of the funds for the buyer are taken directly from the home sale's proceeds instead of from a bank account.
Unfortunately, when granting the repair credit, many sellers go about it in the complete wrong way, putting their buyer's ability to acquire home financing for the purchase at risk.
That's because -- as a rule -- lenders do not allow concessions for home repairs to be line-item credited on the final settlement statement.
This is for two reasons:
Put the two together and it raises the red flag we call "Fraud Alert".
The correct way to offer a repair credit is to reduce the home's sale price by the amount of the credit and make that the new purchase price. In the end, the seller goes home with the same amount of money.
Posted on May 18, 2007
Mortgage rates have held in a very tight range over the past few months, but little by little, they are inching higher.
Mortgage rates are not picked from thin air. Just like stock prices, they are based on facts, opinions, and psychology.
There is a lot of news and data to interpret but, for the first time since last Fall's precipitous decline in rates, psychological factors are now the driving force.
Mortgage bonds recently pushed through a "barrier" that should place continued pressure on mortgage rates to increase. In the last two years, mortgage prices have crossed this barrier just one time.
Trends tend to last for extended periods of time in the mortgage business and, for now, the trend is not your friend. If you're shopping for a mortgage, today would be a good day to lock.
Posted on May 17, 2007
Each month, the Commerce Department releases a statistic titled "Housing Starts" that measures residential construction activity.
This morning, the Commerce Department released April's Housing Starts data (PDF) and the headline data reflected a 2.5% (±9.3%) increase in new construction.
Markets had anticipated a 0.8% decrease. This coincided with a decrease in available homes, as shown on the graph at right.
Housing Starts details the number of residential units on which construction started in the reported month.
Housing Starts can provide terrific guidance on the future direction of our economy for several reasons:
So, as more homes are built, more jobs are created, and more money is pumped back into the economy.
A hot Housing Starts number can predict strong economic growth 6-9 months out on the horizon and that is one reason why economists watch it intently.
Another reason Housing Starts matters is because the Federal Reserve is inflation-wary.
It has stated many times that growth is strong but that housing is dragging down overall growth to a more comfortable level. The housing sector, it believes, will create a gradual economic slowdown.
Today's data may prove otherwise.
In response, expect mortgage rates to rise today on inflation concerns.
Posted on May 16, 2007
According to RealtyTrac, one out of every 783 homes in the United States filed for foreclosure in April. This is down one percent from March, but up 62 percent from one year ago.
If you are struggling to pay your mortgage and have not yet entered foreclosure, the best thing to do is to call your lender and notify them of your difficulties.
There is no need for a long sob story -- just the facts will do.
Remember: foreclosure is a difficult and expensive proposition for mortgage lenders and they want to avoid it just as much as you do. Often, they'll help you craft a payment plan to get current on your loan(s) -- but they have to hear from you first!
Anything you can do to preserve your credit rating serves you well in other areas of your financial world including credit card interest rates, auto loans, and insurance payments.
Bad situations happen to people who otherwise have good credit all the time. Don't let a temporary problem destroy your credit or threaten your home.
No one benefits from drastic action taken against you, so give the lender a call and work things out to everyone's satisfaction.
Posted on May 15, 2007
Last week in the mortgage markets was thick with hype and thin with action.
Whenever the Fed meets, there is potential for wild swings in mortgage rates. And, although the Fed doesn't control mortgage rates, it's views on inflation and the economy carry tremendous weight with traders, with economists, with banks, and with governments across the world.
It's the opinions of the Fed that cause mortgage rates to move in one direction or the other.
In its press release, the Fed stated that inflation remains "somewhat elevated" and that its predominant concern is that inflation "will fail to moderate as expected". The remarks were slightly more defensive on inflation than expected, but markets took it in stride.
For now, markets are focusing on the American Consumer's ability to push the economy along in the face of rising gas prices, weakening sales at retail stores, and other cost of living increases. This plays directly into Tuesday's Consumer Price Index (CPI) data.
CPI measures the expenses of everyday living for Americans and -- even excluding gas and food prices -- it is expected to increase. Because personal income is usually a fixed number, rising costs force people to eventually make difficult choices and the usual casualty is "free spending".
Less spending slows down the economy so if CPI is higher than expected, there will be downward pressure on mortgage rates in response.
In addition, keep Wednesday's Housing Starts number in the back of your mind.
Housing's well-publicized weakness on a national level is no longer moving the mortgage markets but if this figure is unexpectedly hot, mortgage rates will bounce higher on speculation that the worst of the housing market is over. That runs contrary to the current opinion in trading pits that have watched a precipitous decline over the last 24 calendar months.
Mortgage rates will be extremely volatile at the beginning of the week and should taper to relative calmness by Friday barring any jarring, non-economic forces.
Posted on May 14, 2007
The Fed left the Fed Funds Rate unchanged again today for the seventh time in a row after 17 consecutive hikes. But, we knew that was going to happen.
The Fed's press release highlights a growing concern in mortgage markets: growth is slowing overall even as inflation threats remain.
This combination is sometimes called stagflation, but has also be referred to as "slowflation" by economists that don't want to invoke memories of the early-1980s interest rate cycle.
Mortgage markets did not take favorably to the Fed's press release and mortgage rates are slightly higher this morning.
SourceParsing the Fed StatementThe Wall Street Journal OnlineMay 9, 2007http://online.wsj.com/public/resources/documents/info-fedparse0705.html
Certified Mortgage Planner with over 10 years experience.
Making English Out Of Fed-Speak (May 2007 Edition)
Today Is FOMC Day : What Will They Do/Say?
The "Kick 'Em While They're Down" Rule
The Week In Review (May 7, 2007) : What To Watch For
Where Does Your Town Rank Of America's Top 100 List of 2007?
How The ADP Jobs Report Impacts Mortgage Rates
Jobs Report Is The 800 Pound Gorilla In The Room
Why "Prime Rate" Is A Name And Not A Number
The Week In Review (April 30, 2007) : What To Watch For
What's All That Yellen About?
With The Next Fed Meeting 13 Days Away, Markets Will Listen For Clues
Builders May Be Figuring Out The Market Faster Than Home Sellers
Do Your Own Research And Your Appraisal Process Can Be Worry-Free
The Week In Review (April 23, 2007) : What To Watch For
How 2007 Gas Prices Are Pacing With 2006 Gas Prices
Why Downpayments Are Investments, Not Cushions
Whichever Way The Winds Blows
How Consumer Spending Changes Mortgage Rates
This Year, Taxes Are Due April 17
Until Bonds Get More Press, You're Going To Have To Find An Advisor You Trust
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http://jeffsblog.thewrittenblog.com/
I hope you enjoy the information and share any comments.
Your Professional Mortgage Planner,
Jeff Underwood