Weekly Update - What the US Credit downgrade means

"Where do we go from here?" That question from Alicia Keys' song was  one many traders were probably asking, after a week where we saw a massive  and historic selloff in Stocks and rallies in safe-haven instruments like Treasuries and Gold. What happened and what does all of this mean for Bonds and home loan rates? Read on for details.   Standard and Poor's downgrade of the United States' credit rating from AAA to AA+ late Friday, August 5th led to an especially volatile week, with the Dow Jones Industrial  Average falling over 600 points and the S&P 500 Index experiencing its worst day since December 1, 2008-and that was just on Monday! The extreme volatility continued through the week, including Tuesday after the Fed released their Policy Statement,  which was rather downbeat on the economy. In fact, Fed Chairman Ben Bernanke said, "Economic growth so far this year has been considerably slower than the Committee had expected." So where does our economy go from here? The incoming economic data will be under a microscope, as global markets try to decipher if the US (and the world) is slipping back into a recession, or just  experiencing a slow patch. If economic reports here in the US show even  modest strength and an improvement from the recent weak news, Stocks could  retrace some lost ground, which would come at the expense of Bonds and home loan rates. We saw some of this happen late last week, after Initial Jobless Claims  fell below 400,000 for the first time in weeks and Retail Sales for July had their biggest increase in four months.  That being said, the current and ongoing concerns out of Europe should continue to provide a safehaven bid into the US Bond market... and this will help Bonds  and home loan rates. But as you can see, with so many if's, about the only thing we can be sure of is more volatility.  Wherever we go from here, the key takeaway is that RIGHT NOW, home  loan rates remain near some of the best levels we've ever seen. If  you've been thinking about buying or refinancing a home, give me a  call or send me an email to learn how you can take advantage of this  situation. Or forward this newsletter on to someone you know who may benefit.

Forecast for the Week

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Aug 12, 2011) A slew of economic reports this week could give us a hint as to where we're heading. Look for: Housing news with July's Housing Starts and Building Permits Report on Tuesday and July'sExisting Home Sales Report on Thursday. Inflation news with the Producer Price Index, which measures inflation at the wholesale level, on Wednesday, followed by Thursday's Consumer Price Index. Inflation readings are important to watch right now, as a deflationary or low inflation environment will support low home loan rates. Manufacturing news with Thursday's Philadelphia Fed Index. Thursday also brings another weekly Initial and Continuing Jobless Claims Report. Last week's Initial Claims came in at 395,000, below the crucial 400,000 level which signals real improvement in the labor market. 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 in the chart below, Bonds and home loan rates reached some of their best levels last week, and still remain at great levels even with all the volatility. Let me know if you have any questions at all about whether you can benefit from this situation. -----------------------

The Mortgage Market Guide View...

The Downgrade and Home Loan Rates Standard & Poor's (S&P) downgrade of the United States' credit rating from AAA to AA+ was historic-and Stocks have certainly been volatile since the downgrade. But US Bonds and home loan rates haven't been crushed by the news. If you've heard  questions about the downgrade and home loan rates, keep the following points in mind: Despite the downgrade, there are a number of factors that bode well for US Bonds and home loan rates. S&P is currently the only credit rating agency that has downgraded the United States. Both credit rating agencies Moody's and Fitch have maintained the United States' AAA rating. More importantly, the ongoing credit crisis in Greece and other parts of Europe means that US Bonds are still considered one of the safest places to invest. The bottom line is that home loan rates remain near their historic best levels, but about the only thing that is certain in the markets right now is the volatility. If you know someone who has been thinking about buying a home or refinancing, call or email today to get started. -------------------------- Economic Calendar for the Week of August 15-19, 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 August 15 - August 19 Date ET Economic Report For Estimate Actual Prior Impact Mon. August 15 08:30 Empire State Index Aug -0.4 -3.76 HIGH Tue. August 16 08:30 Housing Starts Jul 608K 629K Moderate Tue. August 16 08:30 Building Permits Jul NA 624K Moderate Tue. August 16 09:15 Capacity Utilization Jul 77.0% 76.7% Moderate Tue. August 16 09:15 Industrial Production Jul NA 0.2% Moderate Wed. August 17 08:30 Core Producer Price Index (PPI) Jul 0.2% 0.4% Moderate Wed. August 17 08:30 Producer Price Index (PPI) Jul NA -0.4% Moderate Thu. August 18 08:30 Jobless Claims (Initial) 8/13 400K 305K Moderate Thu. August 18 08:30 Consumer Price Index (CPI) Jul 0.2% -0.2% HIGH Thu. August 18 08:30 Core Consumer Price Index (CPI) Jul 0.2% 0.3% HIGH Thu. August 18 10:00 Existing Home Sales Jul 4.87M 4.77M Moderate Thu. August 18 10:00 Philadelphia Fed Index Aug 1.0 3.20 HIGH Thu. August 18 10:00 Index of Leading Econ Ind (LEI) Jul 0.2% 0.3% Low