Rates Hit Record Bests

 

In This Issue

Last Week in Review: Bonds and home loan rates improved to record levels — find  out why. Forecast for the Week: A full slate of economic reports is ahead, with news on  inflation, the housing market, manufacturing and more. View: Did you know that bad news can be good for home loan rates? Be sure to read  the article below.

Last Week in Review

Survey says? Last week’s economic report calendar may have been light, but  some important surveys revealed key data to note. Read on for the details...and how  home loan rates fared.  As you can see in the chart,  the National Association of  Realtors (NAR) said that of the  146 Metro cities surveyed, home  prices rose in 74 of them in  Q1 2012. This is up from 29 cities  that saw an increase in home  prices in Q4 2011. In addition,  the NAR also said that  inventories for existing homes fell  22% since this time last year  and are down 41% since the  peak in mid-2007. While the  housing market has a long way  to go, this report was a nice step  in the right direction.  There was also news from the  National Federation of Independent  Business, which said that its small  business optimism index gained 2% in April as the survey revealed that companies   have increased plans for hiring and investing in the future. While companies added  new employees at a slower pace in April than in March, the index rose to 94.5  — the highest level since February of 2011. Overall, though, the report showed that  our economy is improving but is still fragile. The state of our economy is part of the  reason for the improvement in Bonds (and home loan rates, which are tied to  Mortgage Bonds) of late.  Another big reason that Bonds and home loan rates have been improving is the fresh  round of uncertainty out of Europe. France elected a new president, and this change  of the guard represents the ninth EuroZone leader swap since the financial crisis  began. Greece is also back in the news and their citizens are not taking to the  austerity measures either. The New Democracy government, a pro-bailout party, is  having trouble gathering the support to rule the government. This has sparked some  safe haven trading into our Bonds, as investors see our Bonds as a safe place for  their money.  The bottom line is that now continues to be a great time to purchase or  refinance a home, 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 3.5% Mortgage Bond (Friday May 11, 2012)   With earnings season behind us, investors will be deluged with a slew of economic reports that will touch on many segments of the U.S. economy: Retail Sales will be released on Tuesday. This report gives the markets some insight to how consumer spending is holding up. Also on Tuesday, the Consumer Price Index (CPI) will report on inflation at the consumer level. Last week’s Producer Price Index showed that inflation at the wholesale level has moderated, thanks to lower energy prices. Will CPI follow suit? Manufacturing from the New York Empire and Philadelphia Fed Index will also be released Tuesday and Thursday, respectively. Housing Starts and Building Permits data will be delivered on Wednesday. Last — but not least — will be the Weekly Initial Jobless Claims numbers on Thursday. Last week's data was the lowest in a month. In addition to those reports, European headlines will continue to dominate the news as the debt woes in that region plague the global economies. Also, the minutes from the Fed's April meeting of the Federal Open Market Committee will be released and this could move the markets. 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, Bonds and home loan rates reached record best levels last week. I’ll be monitoring the markets closely this week to see what happens next.

The Mortgage Market Guide View...

Why Bad News Can Be Good for Home Loan Rates It may seem odd that negative economic news can actually be good for home loan rates, but there's a pretty simple explanation for this phenomenon. Here’s a concise explanation you can share with your clients or you can use to gain a better understanding yourself.  First, we need to remember that big money managers who are in search of higher returns avoid holding onto cash by investing in both Stocks and Bonds.  Second, we need to dispel the myth about how home loan rates are determined. Despite what it may sound like in news stories covering the Federal Reserve’s meeting, home loan rates are based on the performance of mortgage-backed securities — which are a type of Bond.  When we put those two points together, we see that whenever the economy is on fire and there are good economic news reports, investors tend to put more money into Stocks. That’s because Stocks offer higher returns, even though they are generally more risky. To put money into Stocks, however, investors must remove some of their money from less-risky Bonds. The result is a decreased demand in Bonds that causes Bond prices to worsen, which causes home loan rates to go higher.  Inversely, when the economy is sluggish and economic reports are negative, money managers tend to take money out of higher-risk Stocks to put it into less-risky Bonds. As demand for Bonds increase, Bond pricing improves and home loan rates go down.  So while it may seem odd that home loan rates improve when economic news is sluggish, it actually makes sense when you look at the big picture.  If you have any questions about how the economic news is impacting home loan rates, please just call or email. I’m always happy to chat about what’s happening in the markets and what it means to home loan rates.  Economic Calendar for the Week of May 14 - May 18 Date ET Economic Report For Estimate Actual Prior Impact Tue. May 15 08:30 Retail Sales Apr 0.2% 0.8% HIGH Tue. May 15 08:30 Retail Sales ex-auto Apr 0.2% 0.8% HIGH Tue. May 15 08:30 Consumer Price Index (CPI) Apr 0.0% 0.3% HIGH Tue. May 15 08:30 Core Consumer Price Index (CPI) Apr 0.2% 0.2% HIGH Tue. May 15 08:30 Empire State Index May 8.4 6.6 Moderate Wed. May 16 02:00 FOMC Minutes 4/25 NA NA HIGH Wed. May 16 09:15 Capacity Utilization Apr 79.0% 78.6% Moderate Wed. May 16 09:15 Industrial Production Apr 0.5% 0.0% Moderate Wed. May 16 08:30 Building Permits Apr 730K 747K Moderate Wed. May 16 08:30 Housing Starts Apr 680K 654K Moderate Thu. May 17 08:30 Jobless Claims (Initial) 5/12 365K 367K Moderate Thu. May 17 10:00 Philadelphia Fed Index May 8.8 8.5 HIGH

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Memorial Day Facts and Economic News

IN THIS ISSUE...

	Turn...turn...turn. In their hit song, The Byrds sang that for everything, there is a season. As we enter May, we're seeing a bit of a turn ourselves as many of us turn our attention towards warm-weather season. But, as you'll read below, not everything is turning out as positive as we'd like. Read on to find out what's going on behind the headlines: Up...Up...and Away? – Is inflation tame or on the rise? The chart below says it all...despite the Fed's comments. What to Watch – Is employment on the mend? Read the article below to see what's going on behind the headlines! Memorial Day – The history behind this holiday may surprise you! Q&A: Good Time? – Is now a good time to buy? Here are some facts to help you make up your mind! If you have any questions or would like to discuss your unique situation, call or email today. And please forward this newsletter to friends, family members and coworkers who may find this information helpful.

Up...Up...and Away?

	Inflation was a big story last month, with reports on both the wholesale and consumer levels. The wholesale-measuring Producer Price Index (PPI) showed that prices remained mostly unchanged during March. Remember, inflation hurts the value of fixed investments like Bonds (including Mortgage Bonds, to which home loan rates are tied)...so the lack of inflation on the wholesale side was good news for Bonds and home loan rates. Last month, we also saw a new reading of the Consumer Price Index (CPI), which was inline with estimates. However, as you can see in the chart, the year-over-year number was slightly higher than the previous reading. While the reading raised eyebrows a bit, the Fed is still reiterating that inflation remains subdued. For example, Fed Chair Bernanke recently noted that inflation is higher in the short-run due to higher energy costs, but he said that the Fed expects prices to moderate and remain in check longer-term. Despite those comments, inflation continues to be an important topic to watch. If the Core CPI continues to rise, Bonds and home loan rates will have a tough time improving much further, regardless of other factors. The economy received some good news last month in terms of consumers. Retail Sales rose by a nice amount, as consumers bought all kinds of products across the board. This adds to the increasing trend seen in January and February, and it's a good sign for our economy, since consumers don't spend when they aren't feeling optimistic about their financial situation. These news stories will continue to impact the direction in which Bonds and home loan rates move in the weeks ahead. The takeaway is that home loan rates remain near historic lows and now continues to be a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you.

What to Watch: Employment on the Mend?

	One of the most widely watched reports each month is the official Jobs Report. Here's a break down of what this report includes and what's going on behind the numbers! What is it? The Jobs Report is a monthly report released by the US Labor Department. It includes the most recent data on non-farm payrolls and the overall unemployment rate, as well as hourly earnings and the average work week. When is it released? The official Jobs Report is released the first Friday of every month. The next report will be released Friday, May 4, 2012. What happened last month? The Jobs Report that was released at the beginning of last month indicated that the unemployment rate declined to 8.2%. While any decline in unemployment is good news, the figure does need to be taken with a grain of salt - especially in light of the significant headline jobs creation miss. The reason why: the Labor Force Participation Rate (LFPR), which removes some of the guesstimating and adjustments of the unemployment rate. That number (currently at a 30-year low) is a concern because if the LFPR continues to decline, it means we are seeing a smaller ratio of people working against the overall population. I'll be watching this report and its impact on the markets closely to see how it may impact home loan rates. If you have any questions, please call or email.

The History of Memorial Day

	Memorial Day will be celebrated at the end of this month...but the history behind this holiday may surprise you! Originally known as Decoration Day, Memorial Day was first widely observed on May 30, 1868 as people honored those who perished in the Civil War by decorating their graves. The celebration in 1868 was inspired by local observances that had occurred on May 30 in the three years after the Civil War ended. By the end of the nineteenth century, many towns across the country started celebrating Memorial Day and after World War I, these observances began honoring soldiers who had perished in all of America's wars. Where is the birthplace of Memorial Day? Though several cities claim to be the birthplace of Memorial Day, including Columbus, Miss.; Macon, Ga.; and Boalsburg, Pa., President Lyndon Johnson declared Waterloo, N.Y. the official birthplace of Memorial Day back in 1966. Waterloo - which had first celebrated the day on May 5, 1866 - was chosen because the town had made Memorial Day a community-wide, annual event. Not only would businesses close, but residents would also decorate the graves of soldiers with flowers and flags. A national holiday In 1971, Congress declared Memorial Day a national holiday to be celebrated the last Monday in May. Today, Memorial Day is celebrated at Arlington National Cemetery, as a small American flag is placed on each grave. The president or vice-president also usually lays a wreath at the Tomb of the Unknown Soldier. Best wishes to you and yours this time of year. And please contact me if I can be of any assistance to you at this time!

Q&A: Good Time?

	QUESTION: Is now a good time to buy? ANSWER: Home loan rates have improved to their best levels in two months, as Mortgage Bonds have moved higher in recent weeks. In addition, a recently released study by Fannie Mae showed that 73% of consumers polled in March said that buying a home today is a good idea. That number was up from 70% in February. Meanwhile the percentage of those who say it's a good time to sell is at 14%, up just slightly. What does that mean? It means it's a buyer's market indeed - and with 44% of respondents saying they expect their own financial situation to improve over the next six months, the purchases may start flowing sooner rather than later. In addition, 37% said that they expect home prices will increase - which is another good reason that now is a good time to be in the market for a home. If you have any questions that I can help with at this time, please call or email today. It will only take a few moments to discuss what's going in the markets and how it impacts your unique goals and situation.

	The material contained in this newsletter has been prepared by an independent third-party provider. The material provided is for informational and educational purposes only and should not be construed as investment, financial, real estate and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors. As your Trusted Advisor, I always want to make sure you are clear on all details of the home financing process. If you or someone you know are interested in purchasing or refinancing a home, give me a call today! Mortgage Success Source, LLC is the copyright owner or licensee of the content and/or information in this email, unless otherwise indicated. Mortgage Success Source, LLC does not grant to the recipient or distributor a license to any content, features or materials in this email. You may not distribute, download, or save a copy of any of the content except as otherwise provided in our Terms and Conditions of Membership, for any purpose.