Tame Inflation Helps Home Loan Rates

Last Week in Review

Last Week in Review: Tame inflation news, poor economic reports, and the drama  in Europe impacted the markets and home loan rates. Find out how. Forecast for the Week: The economic report calendar lightens up, but an  important Fed meeting is ahead. View: Wondering about the state of the housing market? An important report was  just released, with key details below.

Last Week in Review

“Have the nerve to go into unexplored territory.” Alan Alda. And Bonds and  home loan rates continue to reach the unexplored territory of record best levels.  Read on to find out why. Several factors  are helping  Bonds and home  loan rates at the  moment. First,   inflation remains  tame, as evidenced  by the Consumer  Price Index (CPI),  which fell by 0.3%  in May. This drop  in CPI is the lowest  in three years.  The Producer Price  Index for May  also came in below  expectations,  showing that inflation at the wholesale level is tame as well. Remember, inflation hurts  the value of fixed investments like Bonds (thus, hurting home loan rates, which  are tied to Mortgage Bonds)...so inflation staying in check is crucial when it comes  to home loan rates remaining at or near record best levels.  Also helping Bonds and home loan rates are weak economic reports here in the US  and the ongoing drama in Europe. With Greece, Ireland, Portugal and Spain receiving  bailouts — and with the recent uncertainty related to the elections in Greece —  investors overseas continue to see our Bonds as a safe haven for their money.  Here at home, last week’s Initial Jobless Claims Report, Consumer Sentiment Report,  and US Empire Index Manufacturing Report were all worse than expectations, while  Retail Sales matched expectations. This data will be on the Fed's radar screen at  next week's Federal Open Market Committee meeting (FOMC). A growing number of  pundits feel that the Fed may mention some new stimulus in the form of a third round  of Quantitative Easing (QE3). The news could initially bode well for Stocks — and, in  turn, could be negative for Bond prices and home loan rates. So this is an important news  story to watch!  The bottom line is that home loan rates remain near historic lows, as 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 or your clients.

Forecast for the Week

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Jun 15, 2012) The economic calendar is light this week, but there’s still the potential for market-moving news: Housing Starts and Building Permits will be released on Tuesday while Existing Home Sales will be released on Thursday. Investors continue to look for any signs that the housing markets are turning the corner to greener pastures. Speaking of housing markets, check out the View article below regarding a new report released about the State of the Nation’s Housing. Weekly Initial Jobless Claims will be delivered on Thursday as usual. The number of claims remains stubbornly high and points to a troubled labor market. Also on Thursday, the Philadelphia Fed Index will be closely watched as to the state of factory conditions in that region. In addition, all eyes and ears will be glued to Wednesday's announcement from the Fed. The FOMC meeting will begin on Tuesday and end Wednesday at 12:30pm ET with the release of the monetary policy statement.  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 continue to improve. I’ll be watching closely to see what happens this week.

The Mortgage Market Guide View...

Outlook for a Housing Market Recovery Home prices may well find a bottom this year, and stronger sales should pave the way for a pickup in single-family construction over the course of 2012.  That’s the assessment made by Harvard University’s Joint Center for Housing Studies (JCHS) in its recently released “State of the Nation’s Housing” report. The report — which has been released since 1988 — is an essential resource for both public policy makers and private decision makers in the housing industry.  The bottom line of the report is that — after several false starts — there is reason to believe that 2012 will mark the beginning of a true housing market recovery.  However, employment growth remains a key factor, providing the stimulus for stronger household growth and bringing relief to some distressed homeowners. And, if the broader economy weakens in the short-term, the housing rebound could again stall.  Here are just some of the findings in the report: The monthly mortgage payment for the typical home currently compares more favorably to rents than at any time since the early 1970s. By the first quarter of 2012, existing home sales were 5.2 percent above year-earlier levels, with single-family sales up 6.3 percent. Sales of newly constructed homes in the first quarter of 2012 stood 16.7 percent above year-earlier levels. The inventory of existing homes for sale shrank by some 23 percent in 2011, reducing the supply in the first quarter of 2012 to its lowest level since 2006. Single-family permitting, a leading indicator of starts, was also up 16.9 percent in the first quarter of 2012. The complete report provides a current assessment of: The state of the housing market and the foreclosure crisis The economic and demographic trends driving housing demand The state of mortgage finance Ongoing housing affordability challenges You can download the full report from the JCHS’s website. You can also download a convenient handout of Key Housing Industry Facts from the website.  Economic Calendar for the Week of June 18 - June 22 Date ET Economic Report For Estimate Actual Prior Impact Tue. June 19 08:30 Housing Starts May NA 717K Moderate Tue. June 19 08:30 Building Permits May NA 715K Moderate Wed. June 20 12:30 FOMC Meeting Jun No Change .25% HIGH Thu. June 21 08:30 Jobless Claims (Initial) 6/16 NA NA Moderate Thu. June 21 10:00 Existing Home Sales May NA 4.62M Moderate Thu. June 21 10:00 Philadelphia Fed Index Jun NA -5.8 HIGH

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