How to gain Credibility, and Economic data this week

In This Issue

Last Week in Review: Important inflation news was released. Plus the Fed met. Forecast for the Week: The economic calendar heats up, with news on housing, inflation, manufacturing, and more. View: There's a simple way to increase your credibility with clients and referral partners. Check out the details below.

Last Week in Review

Actions speak louder than words. Though last week, the Fed's words and actions were both important, as the Federal Open Market Committee (FOMC) met for its final regularly-scheduled meeting of 2012. Read on to learn what the Fed said, and what happened to home loan rates. As expected, the Fed announced a fourth round of Bond Buying (known as Quantitative Easing or QE4) in an effort to continue to spur on economic growth and keep home loan rates low. But what really took the markets by surprise was the Fed's decision to tie the Fed Funds Rate (the rate banks charge each other for lending money overnight) to the Unemployment Rate. Instead of sticking with their plan of maintaining low rates until "at least mid-2015," now the Fed is going to hold the Fed Funds Rate steady as "long as the Unemployment Rate remains above 6.5%." One of the biggest takeaways from this decision is that the Fed may be more tolerant of a rise in inflation. Lower unemployment would mean that the economy is gaining some steam, thanks in part to the stimulus programs like QE3 that are currently underway, and inflation could easily trend higher in an improving economy. And remember, inflation is the arch enemy of Bonds–and therefore, of home loan rates, as home loan rates are tied to Mortgage Bonds–because inflation reduces the value of fixed investments like Bonds. As of now, however, inflation at the wholesale and consumer levels remains tame. The wholesale-measuring Producer Price Index (PPI) fell by 0.8% in November, while the Consumer Price Index (CPI) fell by 0.3%, which was below expectations. However, when inflation manifests, it tends to do so quickly. This is a key area to keep a close eye on in the weeks and months ahead. So what does this mean for home loan rates? If inflation does start to heat up, Bonds and home loan rates could be negatively impacted. However, the continued uncertainty in the markets, both here with the ongoing Fiscal Cliff saga and overseas with the debt crisis in Europe, means that investors will likely continue to see our Bond market as a safe haven for their money. This could benefit Bonds and home loan rates in the process. The bottom line is that now is a great time to consider a home purchase or refinance, as home loan rates remain near historic lows. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

Chart: Fannie Mae 3.0% Mortgage Bond (Friday Dec 14, 2012) A full week of economic reports is ahead, with news on manufacturing, housing, inflation, and more. In manufacturing news, the Empire State Index will be released on Monday with the Philadelphia Fed Index being delivered on Thursday. Housing data will fill the airwaves this week with Housing Starts and Building Permits on Wednesday and Existing Homes Sales on Thursday. Weekly Initial Jobless Claims will be released as usual on Thursday. The numbers have been ticking down as the impact of Hurricane Sandy has subsided. Also on Thursday, look for the Gross Domestic Product Report. It will be interesting to see if the third reading for the third Quarter of 2012 will remain at 2.7% or if the figure will be revised lower. Friday's data includes the inflation-measuring Core Personal Consumption Expenditures. Inflation has been tame and the Fed believes this will be the case for the foreseeable future. Rounding out the data on Friday, Personal Income and Spending will be released along with Consumer Sentiment. 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 chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on. When you see these Bond prices moving higher, it means home loan rates are improving – and when they are moving lower, home loan rates are getting worse. To go one step further – a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning. As you can see in the chart below, despite the tame inflation news, Bonds and home loan rates worsened slightly due to added selling supply in the markets and an improvement in Stock prices. However, Bonds and home loan rates remain near record best levels and I will continue to monitor them closely.

The Mortgage Market Guide View...

The Incredible Credibility Script We all know that people follow the lead of credible and knowledgeable experts. It's why professionals put diplomas on their wall, car commercials mention their awards, and testimonials appear in advertising. If you go around tooting your own horn to new prospects, however, you can wear out your welcome fast. Dr. Robert Cialdini, Professor Emeritus of Psychology and Marketing at Arizona State University and author of the bestselling business book Influence: The Psychology of Persuasion, discovered if someone else "toots your horn," even if they don't have any expertise themselves–and even if they have a financial interest in making the recommendation–prospects are favorably influenced regardless. Here's a simple strategy you can employ. Whenever a call comes in requesting a particular service, have your receptionist briefly mention your qualification or expertise before transferring the call. Even something as simple as, "Let me transfer you to Bob, he has 20 years of experience in that area," can make a difference to potential clients. According to Cialdini's research, one company used that very script and they saw a surprising 20% rise in the number of appointments and a 15% rise in signed contracts. Not a bad return on investment! While it's important to explain why you're a credible authority, it doesn't always have to come from you. Try this technique out for yourself, and then share it with other professionals in your referral network. Economic Calendar for the Week of December 17 - December 21 Date ET Economic Report For Estimate Actual Prior Impact Mon. December 17 08:30 Empire State Index Dec NA -5.2 HIGH Wed. December 19 08:30 Housing Starts Nov NA 894K Moderate Wed. December 19 08:30 Building Permits Nov NA 866K Moderate Thu. December 20 10:00 Philadelphia Fed Index Dec NA -10.7 HIGH Thu. December 20 10:00 Existing Home Sales Nov NA 4.79M Moderate Thu. December 20 08:30 GDP Chain Deflator Q3 NA 2.7% Moderate Thu. December 20 08:30 Gross Domestic Product (GDP) Q3 NA 2.7% Moderate Thu. December 20 08:30 Jobless Claims (Initial) 12/15 NA NA Moderate Fri. December 21 08:30 Personal Income Nov NA 0.0% Moderate Fri. December 21 08:30 Personal Spending Nov NA -0.2% Moderate Fri. December 21 08:30 Personal Consumption Expenditures and Core PCE Nov NA 0.1% HIGH Fri. December 21 08:30 Personal Consumption Expenditures and Core PCE Nov NA 1.6% HIGH Fri. December 21 08:30 Consumer Sentiment Index (UoM) Dec NA 74.5 Moderate

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