Last Week
Last Week
Last week, as expected, the Federal Reserve left rates unchanged at 2% after seven consecutive cuts that started in September and ended at the April 30th FOMC meeting. The forward looking statement read "in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high." This phrase along with some others highlighted the Fed's tough talk on inflation, but their lack of action initially pressured the Bond Market lower, before prices rebounded to finish the day just slightly lower. We feel strongly that the Fed has to step in and hike rates in order to strengthen the US Dollar and combat high Oil prices. With high Oil prices and inflation threats looming, it is very tough to see Mortgage Bonds moving much higher from here.
The final Gross Domestic Product (GDP) was released showing a 1.0% increase for the first quarter and was inline line with estimates. Initial Jobless Claims were 384,000, slightly higher than expectations of 375,000. The four-week average of those claims rose to 378,250, the highest since October 2005. Both figures are above levels signal continued weakness in the labor market.
Existing Home Sales for May were reported at 4.9 Million units, which was inline with expectations. The inventory of unsold existing homes dropped slightly to a 10.9 month supply. The report tells us the housing market is weak but stable.
This Week
The Federal Jobless Report is due tomorrow, July 3rd. The ADP Employment report
was released this morning, showing a dismal reading of 79,000 jobs lost last month, the biggest loss since November 2002. Job gains reported for May were also revised lower. After adding in an estimated 20,000 government jobs created in a typical month but not included in ADP's read, their report suggests that about 60,000 jobs were lost in June...inline with estimates for tomorrow's official Jobs Report from the Department of Labor. If the news is bad, as expected, mortgage rates should perhaps fall a bit.
Have a happy and safe Independence Day this 4th of July!
Weekly Mortgage Update
Weekly Mortgage Review
June 25, 2008
Last Week
Last week we confirmed that rates had climbed dramatically in early June. Nothing has happened to push them back down. On a nationwide average, they are about 6.5% on a 30 year fixed, still far below the 10 year average.
Initial jobless claims were released last week, showing the number of Americans filing first-time claims for unemployment benefits fell last week, signaling an improvement in the labor market. Continuing jobless claims fell to 3.6 million, the lowest since April, but still well above the year ago level of 2.52 million. Adding to more inflation fears was a report from the Agricultural Department saying the price of cereals, baked goods, sweets and poultry will rise this year by more than expected a month ago because of accelerating costs for grain and fuel.
Job Losses – Since peaking on 10-31-07, the number of workers on US payrolls has declined by 608,000 over the last 7 months through 5/31/2008. During the last official US recession, the number of workers peaked on 3/31/01 and over the subsequent 7 months fell by 872,000.
This Week
Caught between inflationary pressures and a weakening economy, the Federal Reserve’s policy makers voted on Wednesday to deal primarily with the weakening economy by keeping interest rates at their present level.
The Fed did not hike rates today. There is a possibility of a hike in August but it is not likely. The Fed is in a tough spot - the economy stinks, housing is struggling, confidence is low and costs are rising. You need only look at your last receipt from the grocery store or gas station to see how quickly things have changed. And a walk through your local shopping Mall tells another story of individuals who are less able to spend. That is the Fed's problem...the smart move is clearly to hike. Inflation is rapidly eating away the value of money. And while food price increases hurt, oil is the real story. So why has oil risen so wildly? The answer...The Fed. The evidence is too clear to ignore.
Let's take a look at where we were before the first Fed cut on September 18th. The Fed Funds Rate was at 5.25%, Oil was at $73 per barrel and the Euro was $1.35. Not great, but not bad. Fearing a recession, the Fed did the right thing to stimulate the economy - they cut. But cutting rates in the US makes higher rates in Europe appear much more attractive. So the Dollar began to tank against the Euro and just got worse as the Fed continued to cut. Now it takes $1.56 to equal one Euro. That is a huge swing. And here is where it gets interesting...Oil is priced in Dollars, so as Dollars decline, Oil price per barrel must rise. Oil has gone from $73 a barrel before the Fed cuts to yesterday's close of $137 a barrel.
And the European Central Bank President, Jean - Claude Trichet, has been talking about a rate hike in Europe, even though they are headed for a recession. Remember there is a big difference between the US Fed and the ECB - the US has a dual mandate, fight inflation and promote growth. The ECB just fights inflation. And just the talk of a hike from the ECB has sent oil even higher.
Again, oil prices are surging mainly because of the Dollar weakness and the Fed cuts. Think about it - has demand for oil suddenly skyrocketed in the past 8 or 9 months? Sure it has gone up, but oil had already doubled in price when it was at $70. And higher prices for oil hurts everything. Sure at the pump and for heating, which allows less to spend, but travel, manufacturing, shipping...the list goes on and on.
Next Week
Now that the Fed has met and released its Policy Statement, the market will move its focus to next week’s job data that will be released by the Labor Department on July 3rd.
Mortgage Update 6/16/2008
Last Week in the News
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Reflecting the stimulus from government rebate checks, retail sales rose a full percentage point in May, double what economists were anticipating, the Commerce Department reported June 12. Not including the higher prices consumers paid for gasoline, retail sales still rose a strong 0.8%, the biggest increase in a year.
Sales of existing homes in April also caught economists off guard, climbing 6.3% instead of the negative 0.4% drop they were predicting. The new reading, issued June 9 by the National Association of REALTORS®, indicates that the drop in property values has started attracting more buyers and bargain hunters.
Soaring gasoline prices helped push consumer inflation up 0.6% in May, the fastest pace in six months, the Labor Department said June 12. But core inflation, which strips out volatile gas and food prices, edged up a modest 0.2%, easing concerns that big jumps in energy and food costs were breaking through to more widespread inflation.
The nation’s trade deficit — what we import versus what we export — rose 7.8% to $60.9 billion, the largest imbalance since March 2007, the Commerce Department said June 10. Driving the deficit was a $4.3 billion increase in crude oil imports, which jumped to a record $29.3 billion in April.
New claims for unemployment benefits rose to 384,000, an increase of 25,000 from the previous week, the Labor Department reported June 12.
More upbeat economic news came from the Mortgage Bankers Association, which said that mortgage loan applications rose 10.9% from the previous week. Purchase applications increased 12.1% while refi volume was up 8.4% from the previous week.
Economic news due this week includes reports on the Producer Price Index and housing starts on June 17.
Economic data compiled from government reports and news services Bloomberg.com, msnbc.com, cnbc.com, cnn.money.com and Yahoo Economic Calendar.
Mortgage News
Affluent See Buying Opportunities
One bright spot in the housing market is affluent investors. They see bargains and are ready to buy.
According to a recent survey, 77% of the wealthiest Americans — those with annual discretionary incomes in excess of $500,000 — see a “real opportunity” in the housing market, according to a recent study published jointly by American Express Publishing Corporation and the Harrison Group, a market research and consulting firm.
It’s not just the wealthy who are bullish on real estate. Among those defined as upper middle class, with incomes between $100,000 and $150,000, 67% agreed the U.S. real estate market represents a buying opportunity. Among the affluent with incomes between $150,000 and $249,000 and the super affluent with incomes between $250,000 and $499,000, 72% see a buying opportunity.
The wealthiest are committed to buying soon, with 40% saying they are in the market to purchase real estate this year. Among the upper middle class, that number dropped to 17%, whereas 24% of the affluent and 26% of the super affluent were planning to purchase this year.
The bulk of these purchases will be second homes. Among the wealthiest survey participants, 33% said they were currently in the market for a second home and 25% said they were looking for a third home.
A separate survey found that wealthy Americans purchasing multi-million dollar homes typically put a down payment of 20% to 30%, and 25% put down 30% to 50% of the sale price.
by Zach Larachuito
Senior Loan Officer
Indy Mac Bank
Mortgage News
Weekly Mortgage Review
June 11, 2008
Last Week
On Friday, June 6, the Labor Department reported that the Unemployment Rate jumped to 5.5% from last month's reading of 5%. The 1/2 point rise was the biggest increase since February of 1986, while the unemployment rate is the highest since October of 2004. Estimates were looking for a 5% rate. Although the jump in the unemployment rate is getting a lot of attention, remember that the rate was at 5.2% a month earlier. So while the change is negative, it is not as dramatic as the media is portraying.
The US lost jobs in May for a fifth month in a row as payrolls fell by 49,000 versus estimates of -60,000 after a revised upwards 28,000 decline in April. The economy has lost 324,000 jobs so far this year. The total revisions subtracted 15,000 Jobs previously reported for March and April. Overall, the job creations were better than forecast , but the big jump in the unemployment rate pushed Stocks much lower and pushed mortgage rates down a bit.
MLS Data for the Charleston Tri County area reports that monthly sales in May rose 5.5% from 756 units in April to 798 in May. The average sales price increased as did the average days on the market.
This Week
Federal Reserve Chairman Ben Bernanke said "the latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations". Bernanke's speech also suggested that the Fed is in no hurry to hike rates because of "slack" in the economy which can lower inflation.
The Mortgage Market Guide could not disagree more with Mr. Bernanke. While there are risks to continued weakness in the economy, the answer is clearly not more rate cuts...it is rate hikes. The Fed should be in a BIG hurry to hike rates. They feel that the current 2% Fed Funds Rate is about 1% to 1.5% too low. Oil prices have skyrocketed since the Fed began the latest rate cutting cycle. This is because lower rates in the US weaken the Dollar. Oil is priced in Dollars, so as the Dollar weakens, oil prices climb. Last Friday, talks of rate hikes in the Eurozone sent the Euro higher and Dollar weaker, and oil spiked $5 quickly.
Should the Fed finally figure things out and hike rates, the Dollar will strengthen, oil prices will drop back towards $100, inflation will ease, and as a result...mortgage rates will decline. Let's see how long it takes the Fed to understand this.
Coming up
The next Fed Open Market Meeting is scheduled for June 24th – 25th . All eyes will be looking at what the Fed will do with rates.
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Michael Chase - Weekly Report
"INFLATION IS AS VIOLENT AS A MUGGER, AS FRIGHTENING AS AN ARMED ROBBER, AND AS DEADLY AS A HIT MAN." ~ Ronald Reagan. And although you might not describe the effects of inflation in such strong terms yourself...rest assured that the effects of inflation have crept into your home, your gas tank and your wallet. And inflation is also the nemesis of Bonds and therefore home loan rates, because just like inflation erodes the value of the dollars you spend, inflation erodes the value of the fixed return a Bond provides. And last week, Bond pricing worsened on news of inflation, causing home loan rates to move higher by about .25% across the board and reaching the highest levels seen in weeks.
The week was shortened by the Memorial Day holiday, but right out of the gates, inflation concerns abounded. The Consumer Confidence Report indicated that consumer inflation expectations are at an all-time high...meaning that consumers are seeing inflation as a real threat to their own financial situation. Rising energy costs and worldwide inflation fears continued to pummel Bonds lower - in fact, so low that they moved below a tough technical floor of support at the 200-Day Moving Average. This is important because Bonds have made a decisive cross over the 200-day Moving Average on only three separate occasions within the past three years. This means that barring a timely reversal, we are likely seeing a shift in the market towards higher home loan rates.
Friday brought a little good news on inflation, as the Core Personal Consumption Expenditure (PCE) Index showed that inflation does remain within the Fed's comfort zone. While Bonds and home loan rates improved somewhat on the news, the trend for the week was definitely worse overall, as the big picture on inflation cost Bonds and home loan rates some hard earned ground.
LOOKING FORWARD TO YOUR STIMULUS CHECK...AND WISHING THE SIZE OF IT COULD BE "INFLATED?" RETAILERS HAVE COOKED UP SOME INTERESTING SPECIALS TO DO JUST THAT, SHOULD YOU DECIDE TO SPEND YOUR CHECK ON THEIR GOODS OR SERVICES. TAKE A LOOK AT THIS WEEK'S MORTGAGE MARKET VIEW FOR SOME EXAMPLES OF WHAT CREATIVE RETAILERS HAVE IN STORE FOR YOU.
Forecast for the Week
This coming week, one economic report in particular bears inflated significance...Friday's release of the infamous monthly Jobs Report. It will reveal, among many other things, the number of jobs lost or gained during the month of May. Last month's Jobs Report indicated that 20,000 jobs were lost in April, and while this was better than the expected job losses of 75,000, it is possible that the reported number understated the actual number of jobs lost, due to how the Department of Labor averages their count. And part of each month's report is "revisions" to the several prior months' numbers...which this could be quite a wild card for Bonds and home loan rates.
Last month's Jobs Report, which was indeed more positive than expected, caused Bonds to fall a whopping 134bp in a matter of minutes, and home loan rates worsened quickly. Why? Because even though the news wasn't great, it sure was better than anticipated...and this caused money to flow out of Bonds, and into Stocks...which caused Bond prices and home loan rates to worsen. This week's Jobs Report could sure be another mover, and if the report or revisions indicate positive news on the jobs front, home loan rates will likely worsen in response.
Remember when Bond prices move higher, home loan rates move lower...and vice versa. And as you can see in the chart below, Bonds moved lower for most of the week, and actually closed below an important technical level at the 200-day Moving Average. This is a very important level, as it can act as either a very strong floor of support helping Bond prices not to fall below it...or as an equally strong ceiling of resistance, preventing Bonds and home loan rates from improving above it. And with Bonds currently having fallen beneath it, I'll be watching closely this week to see if Bonds have indeed fallen and can't get up...or if they can break above that tough level later this week and help home loan rates improve.
Chart: Fannie Mae 5.5% Mortgage Bond (Friday May 30, 2008)
The Mortgage Market View...
Retailers Looking For Some "Stimulus"...
According to a recent poll on how consumers intend to spend their stimulus checks, 19% of consumers plan on using their economic stimulus check for a special purchase, and 23% plan to use their check for everyday expenses. The rest...well, 36% say they will pay down debt and 22% say they will put it into savings. But will the check burn a hole through their pockets?
Maybe so, particularly with the "stimulus check" specials that many retailers have come up with, offering bonuses and incentives for people who spend their "stimulus" dollars with them. Here are some examples, in case you want to take advantage of any offers:
Sears. If you use your stimulus check to purchase a gift card, you receive an additional gift card worth 10% of your check's value. This offer is also good at Kmart and Lands' End.
Kroger. Between now and July 31, 2008, you can exchange your tax refund or economic stimulus check for a Kroger gift card with an extra $30.00 (for $300.00 checks), $60.00 (for $600.00 checks) or $120.00 (for $1,200.00 checks) added to it. The program is available throughout Kroger stores nationwide - including Kroger, Baker's, City Market, Dillons, Fred Meyer, Fry's, Gerbes, Hilander, Jay C, King Soopers, Owen's, Pay Less, Ralphs, Smith's and QFC stores.
Home Depot. To encourage consumers to invest their stimulus check in their homes through energy efficient products and services, the retailer is offering special values on energy-efficient products such as light bulbs and home appliances through the summer.
Radio Shack. The retailer will cash your check and give you 10% off on any purchase above $50, and then give you the difference as a prepaid MasterCard that can be used anywhere that takes MasterCard.
Domino's Pizza. Although you don't need to use your stimulus check for purchase, Domino's is getting into the spirit of economic stimulus, offering a "recession-busting" special of three pizzas for $12.00. According to the company's press release, "While you're feeding the economy with your special refund check, let it feed you back."
These are just some of the promotions that retailers are currently offering, and more deals are likely on the way. If there's something you want to use part of your stimulus check for, do your homework and take advantage of the specials that are out there. And if you do intend to pay down debt with the check, feel free to give me a call to discuss which debt would make most sense to reduce!
The Week's Economic Indicator Calendar
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 June 02 June 06
Date ET Economic Report For Estimate Actual Prior Impact
Mon. June 02 10:00 ISM Index May 48.0 48.6 HIGH
Wed. June 04 08:15 ADP National Employment Report May -30K 10K HIGH
Wed. June 04 08:30 Productivity Q1 2.5% 2.2% Moderate
Wed. June 04 10:00 ISM Services Index May 51.0 52.0 Moderate
Wed. June 04 10:30 Crude Inventories 5/31 NA -8883K Moderate
Thu. June 05 08:30 Jobless Claims (Initial) 5/31 370K 372K Moderate
Fri. June 06 08:30 Average Work Week May 33.7 33.7 HIGH
Fri. June 06 08:30 Hourly Earnings May 0.2% 0.1% HIGH
Fri. June 06 08:30 Non-farm Payrolls May -52K -20K HIGH
Fri. June 06 08:30 Unemployment Rate May 5.1% 5.0% HIGH
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.
As your trusted advisor, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.
In the unlikely event that you no longer wish to receive these valuable market updates, please USE THIS LINK or email: MICHAELCHASE@synovus.com
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Michael Chase, CMPS
Synovus Mortgage
230 Seven Farms Drive
Suite 101
Charleston, SC 29492
Economic Update - June 2, 2008
New home sales unexpectedly rose 3.3% in April, the first increase in six months, the Commerce Department said May 27. As a result, the inventory of unsold new homes fell slightly to a 10.6 months’ supply versus the 11.1 months’ backlog recorded in March.
The Commerce Department further reported that the median price of a new home sold in April rose to $246,100, up 1.5% from April 2007. In a separate report, however, the Standard & Poor’s/Case-Shiller Index showed existing home prices falling 14.1% in the first quarter of 2008, compared with a year earlier, the biggest year-over-year decline since the index began in 1988.
For the week ending May 29, interest rates on 30-year fixed-rate mortgages rose to an 11-week high, Freddie Mac said.
More mixed economic news came from the industrial sector. Orders to U.S. factories for durable goods — those expected to last three or more years — dropped 0.5%, dragged down by big declines in demand for commercial aircraft and autos. However, excluding transportation, orders rose 2.5% in April, the biggest gain in nine months. Orders for electrical equipment and appliances surged 27.8%, the biggest increase on record.
Another boost for the economy came on May 29 when the Commerce Department upwardly revised first-quarter gross domestic product or GDP — the total tally of the nation’s goods and services — from its previous estimate of 0.6% to an annual rate of 0.9%.
Finally, despite the government’s sending out billions of dollars in stimulus checks, consumer spending nudged up a small 0.2% in April, half of March’s increase, the Commerce Department said May 30. Personal income also edged up 0.2% in April, again half of March’s 0.4% increase.
This week, watch for the May unemployment report due out on June 6.
Economic data compiled from government reports and news services Bloomberg.com, msnbc.com,
The Week in Review - Justin Whitney
The Week in Review:
The Bond market started the week on a positive note as National City received a $7 Billion cash infusion from investors. This was perceived as positive and an indicator that perhaps the "Credit Crisis" has hit bottom and money may start coming back in to the financial markets. The week then unraveled as the existing and new home starts came out. Existing home numbers came in as expected and there is a glimmer of hope that that segment has hit bottom. New homes, on the other hand, fell short of expectations only to confirm that the bottom is still below. Finally, on Friday the bond market rallied as global inflation numbers were reported and the outlook is not good…hurting our bond pricing.
In the end, after a week of volatility, we ended up with mortgage rates at roughly the same levels as when we started the week.
The Week Ahead:
This week is packed with economic news and will prove to be very volatile. On Wednesday the Fed will announce its interest rate decision and the market is anticipating only a .25% reduction. The current logic is that the Fed will slow down the pace of rate reductions for a few periods and try to ascertain what impact the past rate cuts and other economic stimulus programs have had. It’stime to watch the inflation meter!
On Thursday the Personal Consumption Expenditure Index will be released followed by the jobless numbers on Friday. Labor is a leading indicator and the trend has been negative for the last 3 periods.
Recommendations are to lock early in the week ahead of the midweek volatility. Have a great week!
Interest Rates:
Conforming ($417,000 or below)
30yr 6%
3yr ARM 5.375%
5yr ARM 5.375%
7yr ARM 5.875%
10yr ARM 6.375%
Jumbo (Greater than $417,000)
30yr 7.625%
3yr ARM 5.25%
5yr ARM 5.25%
7yr ARM 5.75%
10yr ARM 7%
Justin Whitney
Mortgage Consultant
Remember that you can visit Marshall Walker to view all available properties.
The week in Review- Zach Larichuito
Last Week in the News
Consumer confidence fell to a 25-year low, according to the Reuters/University of Michigan consumer sentiment index, dropping from 69.5 in March to 62.6 in April. The reading is troubling because it’s regarded as an indicator of future consumer spending, which accounts for about 70% of U.S. economic activity.
Sales of existing homes dropped 2% in March to an annual rate of 4.93 million units, the National Association of REALTORS® reported April 22. The median price of an existing home tumbled 7.7% from a year ago to $200,700, the second biggest decline since a record 8.4% drop in February.
Sales of new homes plunged 8.5% in March to an annual rate of 526,000 units, the slowest sales pace since October 1991, the Commerce Department said April 24. The median price of a new home dropped 13.3% from a year ago to $227,600, the biggest year-over-year price decline since a 14.6% plunge 38 years ago. At the current sales pace, it would take 11 months to deplete the national inventory of new homes.
Homebuyers didn’t get much mortgage rate relief as 30-year and 15-year fixed-rate loans edged up for the week ending April 24, Freddie Mac said in its weekly survey of mortgage lenders.
The demand for durable goods — big-ticket items expected to last three or more years — dipped 0.3% in March, a worse-than-expected showing, the Commerce Department said April 24. The last time orders fell for three consecutive months was from February to April of 2001, when the nation was sliding into the last recession.
The job front was a bit rosier, however, as new claims for unemployment benefits fell by 33,000 last week to 342,000, the Labor Department reported April 24. Economists had expected a rise of 3,000.
Economic news due this week includes another consumer confidence report on April 29 and a preliminary report on the nation’s first-quarter gross domestic product on April 30.
Economic data compiled from government reports and news services Bloomberg.com, msnbc.com, cnbc.com, cnn.money.com and Yahoo Economic Calendar.
Remeber to visit Marshall Walker to view all currently available properties!
The Week in Review
The Week in Review:
There were several pieces of news last week that painted a fairly gloomy outlook for the economy. As we enter the "earnings season" the first big companies to report both had lower than expected results. Both Alcoa and General Electric reported low earnings and gave projected earnings estimates lower than previously thought. It set a negative tone for the stock market and money moved out and over the safer bonds.
Other news last week, "Meeting Minutes" from the March 18th Fed Meeting revealed that there is dissention amongst the Fed Presidents over the concerns of inflation. The problem the Fed battles is that the economy is stalling/stalled and they need to take action to stimulate it. In doing so, one action is to continue to lower the Fed rate. This typically leads to inflation and a whole host of other economic issues. It is a constant issue for the Fed regardless of the market climate however, the recessionary concerns and the slow economy are in the fore front.
At the end of the day, the poor economic news was good news for Bonds and mortgage interest rates. We are approaching levels that we experienced in 2005!
The Week ahead:
There are several economic reports due this week that will potentially move the market. Today we start with the Retail Sales Report. Wednesday we get the Consumer Price Index and the Housing and Permit reports. On Thursday the Leading Economic Indicators report will be published and it provides data on economic activity over the last 3-6 months.
Coupled with the daily reports from corporate earrings, this may prove to be an active week. Remember, bad economic news is good for mortgage rates….good news is not.
Please let me know if I may be of assistance. It’s a great refinance market!
Interest Rates:
Conforming: (Less than $417,000)
30yr Fixed 5.625%
3yr ARM 5.000%
5yr ARM 5.125%
7yr ARM 5.250%
10yr ARM 5.500%
Jumbo: (Greater than $417,000)
30yr Fixed 7.250%
3yr ARM 5.250%
5yr ARM 5.250%
7yr ARM 5.375%
10yr ARM 5.750%
Justin Whitney
Mortgage Consultant
C 843-270-8366
F 1-866-332-8270
justin.whitney@bradfordmc.com
www.justinwhitneybmc.com
474 Wando Park Blvd, Suite 106
Mt Pleasant, SC 29464