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There was no rest for the mortgage-rate weary last week. 

As mortgage bonds sold off early in the week, sharp rate hikes followed. A steady stream of better-than-expected economic reports had re-ignited inflation fears, drawing money from the bond market.

On Friday, however, the money flow reversed on a triple threat to the U.S. economy:

1. The Unemployment Rate took its biggest one-month jump in 22 years
2. Oil made its biggest one-day gain
3. The U.S. dollar lost a lot of value

By themselves, each of these events normally would be bad for mortgage rates but the Friday combination of all three led to a huge stock sell-off and renewed demand for bonds -- including the mortgage-backed kind. 

Despite Friday's reversal, mortgage rates were higher on the week, overall.

This week, there won't be much economic data this week but there will be six Federal Reserve members making speeches to the public. 

The most anticipated of the set is Fed Chairman Ben Bernanke's address Monday evening on the topic of "inflation".  Markets will be closed when Bernanke speaks so expect a delayed market reaction Tuesday morning.

Throughout the week, markets should continue their long-standing battle between the fears of inflation and the fear of recession.  It's the same back-and-forth that we've seen since late-2007.

It's also the primary reason why mortgage rates rarely stay still anymore.

(Image courtesy: The Wall Street Journal Online)

The Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent this afternoon, as expected. 

In its press release, the Federal Reserve noted the co-existence of inflation and recession. 

On inflation, the Fed said that energy and food prices are contributing to an "elevated state" of inflation, but that it expects price pressures to ease "later this year and next year". 

On the topic of recession, the Fed seemed a bit more concerned.

Overall, markets reacted favorably to the press release; both stocks and mortgage rates showed signs of improvement in the statement's wake.

Source
Parsing the Fed Statement
The Wall Street Journal Online
June 25, 2008
http://online.wsj.com/internal/mdc/info-fedparse0806.html

Most homeowners make four housing-related payments each month:

1. Principal on a mortgage
2. Interest on a mortgage
3. Taxes on the real estate owned
4. Insurance for the real estate owned

Collectively, these payments are known by the acronym PITI but don't let it fool you -- a homeowner's monthly expenses are still called PITI even if one or more of the elements doesn't apply.

For example, a homeowner with an interest only mortgage does not pay principal each month. 

Additionally, condo owners typically don't pay homeowners insurance -- they pay a monthly assessment and/or maintenance fees to an association instead.

But regardless for what it stands, determining a comfortable PITI should be every homeowner's starting point when looking for a new home.  PITI is the monthly housing cost, after all, and by knowing what fits in your budget, it's a lot easier to compare homes and their related expenses.

It's certainly better than asking the bank "how much home can I afford" -- all that's going to tell you is the P and the I.  As a homeowner, you need to know all four.

PITI is most commonly pronounced pee-eye-tee-eye.

(Image courtesy: Contractor-Books.com)

A "Housing Start" is a new home on which construction has commenced and in May, Housing Starts fell to a 17-year low nationally.

At first glance, this may seem like a negative for the already-battered U.S. housing market.

It's not. 

Falling Housing Starts reflects the broader real estate market and shows us that builders are working hard to get their already-built homes "off the books". 

It would be foolish for them to build new homes now -- each new unit makes selling the existing ones tougher.

So, when we look at the figure objectively, we can see that Housing Starts reaching a 17-year low is actually good news -- real estate prices are based on Supply and Demand, after all.

With Housing Starts touching new lows, we can infer that there will be fewer new homes coming on the market in the coming months and that should help support higher home values nationwide for everyone.

(Image courtesy: The Wall Street Journal Online)

Posted on June 18, 2008

Each month, University of Michigan researcher survey the U.S. population about their thoughts on the economy -- is it improving, it is worsening, is it staying the same. 

May's consumer confidence survey registered it's lowest reading since 1980.

Given the recent headlines, that shouldn't be surprising:

• Unemployment is spiking
• Gas prices are at an all-time high
• Housing markets keep getting bad press

But despite all of that,  the American Consumer appears to be taking the economy's hiccups in stride. 

For example, last month, retailers around the country reported rising sales levels that doubled what economists expected.  This isn't supposed to happen when consumer confidence is falling as fast as it is, right?

But, a closer look at the retail sales data shows that discount retailers such as Target and Wal-Mart led the charge higher.  So, although consumers are feeling worse about the economy, they're still spending money. 

And when they do, they look for value. 

For home buyers, this should sound familiar because it's every real estate agent's mantra right now -- "there's a lot of good values to be had."  It's why some homes are getting multiple offers within days while other languish on the market for months.

The difference lies in the perceived value of the home.

Home buyers are actively looking for "good buys" and when they find them, they're quick to make an offer.  It's why the housing market is showing pockets of strength despite low consumer confidence levels overall -- everyone's snapping up the bargains. 

(Image Courtesy: Wall Street Journal Online)

Posted on June 17, 2008

Mortgage rates moved higher last week on lingering concerns about inflation, the fourth straight week in which rates rose.

Mortgage rates are now as high as they've been since October 2007.

Because inflation devalues mortgage bonds, market players are quick to unload them when signs of inflation are present.  

Last week, there were several such signs:

1. The American Consumer is spending undettered despite economic uncertainty
2. The Cost of Living is rising faster than expected
3. The Federal Reserve reports that some business are passing higher costs on to consumers

Hence, the higher mortgage rates.

This week, only Tuesday registers as a "big data day" with reports on housing, productivity, and Producer Price Index -- the "Business Cost of Living" report.  

There will be four members of the Federal Reserve speaking, though, and that will add some volatility to the market.  Fed Chairman Bernanke is among the speakers, addressing Congress this morning at 10:00 A.M. ET.

So, expect mortgage rates to continue to jump and dip this week, taking their cues from inflation.  More inflation means higher rates and a slowing economy should cause rates to retreat. 

(Image Courtesy: LA Times)

Posted on June 16, 2008

RealtyTrac released its most recent foreclosure statistics and if you only read the headlines, you think the entire country was on the verge of losing its homes.

The underlying data tells a different story, however.

More than half of the country's foreclosure activity in May 2008 was tied to just 4 states in the union:

1. California (28 percent)
2. Florida (14 percent)
3. Arizona (5 percent)
4. Michigan (5 percent)

In other words, the majority of mortgage defaults are coming from a small minority of states.

See, between 2002 and 2006, California, Florida and Arizona were very popular with real estate speculators, many of whom over-extended themselves on real estate; and Michigan's economy has been decimated by job losses in the auto and manufacturing industries.

In addition, these 4 states are among the nation's most populous.  It makes sense that they are distorting the national statistics.

On a local level, the news is not so grim.  Not only did 20 states show a reduction in monthly foreclosure activity, but many more fell below the national foreclosure average.  That type of story, though, doesn't make for good headlines, is all.

Search the full May 2008 foreclosure report for yourself on RealtyTrac's Web site.

Posted on June 13, 2008

Mortgage rates rocketed higher last week, stunning active home buyers and mortgage rate shoppers. 

Some conforming mortgage rates rose by as much as three-quarters of a percent before Friday's closing.

Even in a year in which mortgage rates have been extremely volatile, last week's spike was a large one.

The main driver of last week's increase was additional evidence that the U.S. economy was never in a recession at all; only that it was "weak". 

From last week:

1. New Homes Sales (including cancellations) reported strong
2. Durable Goods showed surprising strength
3. The Chicago "Business Barometer" showed confidence

All three data points run opposite to what market players believed just six weeks ago and the reversal in mortgage rates is, in part, related to those traders selling out of bonds and moving into something else.

Another part of the shift is weak demand foreign for U.S. treasuries.  Lackluster support from buyers drove down prices last week and helped push up yields.

It all adds up to mean that this is a dangerous time to float a mortgage rate and this week shouldn't be safer than last.  Friday is Jobs Reports Day and that always swings a big stick in the mortgage markets.

Until Friday, though, mortgage rates are expected to exhibit the same volatility that they have all year -- some days up, some days down and most days by a lot. 

Falling oil prices may create some downward pressure this week, but the overall momentum is higher.

(Image courtesy: Wall Street Journal Online)