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The Market Slows

2011-06-10T12:50:00.001-07:00

The Dow lost 152.71 points, or 1.3 percent, to 11,971.73 at 2:45 p.m. in New York, its first dip below 12,000 since March, and the Standard & Poor’s 500 Index fell 1.2 percent. Ten-year Treasury yields lost three basis points to 2.97 percent, while the yen rose against all 16 major peers. The cost of insuring Greek and Portuguese debt rose to all-time highs amid lingering concern over Europe’s debt crisis. Oil sank below $100 a barrel.

U.S. equity benchmarks are threatening to erase their gains for the year amid concern that the economic recovery is weakening. The S&P 500 trimmed its 2011 advance to less than 1.5 percent today and the MSCI World Index is up 0.8 percent. The Russell 2000 Index of small U.S. stocks and the Nasdaq Composite Index both erased their gains for 2011 at least briefly today.

“The big question mark for investors is -- is this simply a transitory soft patch?” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion. “Or, if not, will this begin to weigh on corporate profits in a slow economic growth environment, and therefore equity valuations will have to be adjusted? Right now the market is saying the latter.”

Leading Declines
The S&P 500 has lost more than 2 percent this week and is down almost 7 percent from a three-year high at the end of April, while 10-year Treasury yields linger near their 2011 lows. The index is trading at about 12.1 times the forecast earnings of its companies, near the cheapest level since last summer, with analysts surveyed by Bloomberg forecasting profit growth of 20.1 percent this year.

The drivers of the slump have been an inventory correction in manufacturing because of overproduction, a slowdown in demand because of high oil prices, “spiced up with a flareup of sovereign debt pressures in the European Monetary Union periphery, plus worries about Chinese tightening,” according to JPMorgan Chase & Co. (JPM) strategists led by Jan Loeys. It also came as investors awaited the end of the Federal Reserve’s $600 billion bond-purchase program, the central bank’s third round of so-called quantitative easing that investors nicknamed “QE2.”

‘Bearish Drivers’
“How much further markets correct depends on how these bearish drivers worsen and how much investors really believe it was QE2 rather than better data that turned markets around last year,” Loeys’ team wrote in a note to clients today. “Economic data are still on net weaker though supportive of a rebound into” the third quarter.

Travelers Cos. led losses in the Dow today, sliding 2.8 percent, after the insurer said it’s scaling back share repurchases as about $1 billion in catastrophe costs will probably wipe out second-quarter operating profit.

Financial shares pared losses after CNBC reported that the maximum capital surcharge on banks being considered by international regulators may be 2 to 2.5 percentage points, not the 3 percent being widely reported. CNBC cited unidentified officials.

S&P 500 financial shares were down 0.4 percent after sliding as much as 2.1 percent earlier as the Federal Reserve announced wider scrutiny of the balance sheets of big banks. The Fed said it will expand a capital-planning program to the 35 largest U.S. lenders. Banks with at least $50 billion in assets will be required to conduct annual exams to ensure “robust, forward-looking capital planning processes that account for their unique risks and that permit continued operations during times of economic and financial stress,” the Fed said today.

2011-05-09T10:39:00.000-07:00

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Alan Felch
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For the week of May 9, 2011 – Vol. 9, Issue 19
>> Market Update
QUOTE OF THE WEEK..."A will finds a way."--Orison Swett Marden, American writer

INFO THAT HITS US WHERE WE LIVE...For those of us with a strong will to succeed in this housing recovery, the way appears to be by focusing on the extraordinary affordability of today's residential market. Part of this affordability lies in the fact that mortgage rates fell again for the third week in a row, according to Freddie Mac's weekly survey of national average rates for conforming mortgages. This drop took them to their lowest point of the year. The Mortgage Bankers Association (MBA) weekly survey reported demand for purchase loans was UP a seasonally adjusted 0.3% from the prior week.

The National Association of Realtors (NAR) released another annual forecast, this one predicting a 1.8% drop in the medium price of existing homes this year. Sales of existing homes, however, are expected to grow almost 8%, which shows that more buyers are realizing there are outstanding bargains out there, especially when lower home prices are coupled with the low mortgage interest rates. In solid support of this is the recent report that shows it's cheaper to buy a home than to rent in 39 of the 50 largest cities in the U.S.

BUSINESS TIP OF THE WEEK...A customer's experience with your business should be consistent. Customers should come away with the same sense of your unique professionalism and style from every interaction--emails to voicemails, phone conversations to face-to-face meetings.
>> Review of Last Week
IT WAS WILD...Wall Street gave investors a wild ride, in a week that began with the death of Osama bin Laden and ended on a mixed April jobs report. The net result was that after two weeks of gains, all three major stock indexes slid a bit. Commodities also took a hit, with crude oil prices off almost 15% for the week. This is good for consumers, who should get lower gas prices, and good for the rest of the economy, as it starts seeing some of that money which had been going into our tanks. ISM Manufacturing and Services were down for the month, though still indicating growth. Q1 Productivity was up, but lower than the prior quarter.

The April Employment Report held a few surprises. Overall payrolls, expected to increase by 183,000, came in at 244,000 new jobs. The private sector had the best gain in over five years, adding 268,000 new jobs (the loss of government jobs lowered the overall reading). Nonetheless, these numbers still describe a slow recovery, as the pace of job creation was far higher coming out of previous recessions. Also on the downside, average hourly earnings were up less than inflation, at only 0.1%, and the unemployment rate climbed back to 9%, as more people stopped looking for jobs.

For the week, the Dow ended down 1.3%, at 12,639; the S&P 500 was down 1.7%, to 1,340; and the Nasdaq was down 1.6%, ending at 2,828.

Bond prices moved higher, with safe haven buying from investors concerned over Greece's threats to leave the EU and those plummeting commodities prices. The price of the FNMA 4.0% bond we watch ended the week UP .97, the same amount as last week, closing at $100.14. Higher mortgage bond prices signal lower mortgage rates and national average rates for conforming mortgages fell again, as covered above.

DID YOU KNOW?...Crude oil dropped to $99.80 a barrel on Thursday, the first time it's been under $100 in almost two months. But analysts say crude will have to stay around $100 a barrel for 5–10 days before we see gas prices come down at the pump.
>> This Week’s Forecast
INFLATION, CONSUMER FEELINGS, CONSUMER SPENDING...This is the week for looking at inflation once again. Thursday's Producer Price Index shows us how prices are doing at the wholesale level. The overall headline number will continue just shy of 1% with the core number holding at 0.3%. How much of this price increase gets passed on to the consumer will be told by Friday's Consumer Price Index. The Fed focuses on Core CPI, which excludes food and energy and is expected to rise to 0.2%.

We'll see how much consumers are spending with Thursday's Retail Sales for April which should show continued growth, although at a slower rate when they take out car sales. Consumer feelings will be felt Friday with the University of Michigan Sentiment Index, forecast to be down slightly for May.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of May 9 – May 13
Date Time (ET) Release For Consensus Prior Impact
W
May 11 08:30 Trade Balance Mar –$46.3B –$45.8B Moderate
W
May 11 10:30 Crude Inventories 5/7 NA 3.421M Moderate
Th
May 12 08:30 Initial Unemployment Claims 5/7 445K 474K Moderate
Th
May 12 08:30 Continuing Unemployment Claims 4/30 0M 3.733M Moderate
Th
May 12 08:30 Producer Price Index (PPI) Apr 0.9% 0.7% Moderate
Th
May 12 08:30 Core PPI Apr 0.3% 0.3% Moderate
Th
May 12 08:30 Retail Sales Apr 0.7% 0.4% HIGH
Th
May 12 08:30 Retail Sales ex-autos Apr 0.6% 0.8% HIGH
Th
May 12 10:00 Business Inventories Mar 0.8% 0.5% Moderate
F
May 13 08:30 Consumer Price Index (CPI) Apr 0.4% 0.5% HIGH
F
May 13 08:30 Core CPI Apr 0.2% 0.1% HIGH
F
May 13 09:55 Univ. of Michigan Consumer Sentiment May 69.3 69.8 Moderate

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months...Even though more economists are talking about the need for the Fed to raise the Funds rate to curb inflation, virtually none believe Chairman Bernanke will listen to them any time soon. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Jun 22 0%–0.25%
Aug 9 0%–0.25%
Sep 20 0%–0.25%

Probability of change from current policy:
After FOMC meeting on: Consensus
Jun 22 <1%
Aug 9 <1%
Sep 20 <1%

The Current Market Condition

2011-04-28T08:49:00.000-07:00

In the aftermath of yesterday's historic Fed day, Mortgage Bonds are trading higher, and recouping yesterday's losses. Also helping Bonds were some weak economic readings this morning…let's break it all down.
As expected, there was no change to the Fed Funds Rate yesterday, and the Policy Statement pretty much remained the same, including the "extended period" language. Even the highly anticipated and unprecedented press conference given by Mr. Bernanke offered no big surprises.
That said, here are the important takeaways from Bernanke's press conference:
Bernanke said the downtick expected in GDP is "transitory". The Fed just loves that word - "transitory" – as they also use it to explain the persistent high prices of Oil and Commodities. By transitory, Mr. Bernanke is saying that the economy's temporary sluggishness is somewhat a result of high Oil prices, which he believes is also temporary in nature. The obvious question is, what if the high price of Oil is not "transitory" or temporary? Mr. Bernanke also clarified what "extended period" language means, suggesting that a hike in rates would be a couple meetings away. This is something we have been saying for a long time, that once that language is removed, the Fed is moving towards a tightening of monetary policy. And we aren't there yet. He was also crystal clear in saying the the Fed will complete the $600B of QE2 purchases through June, and that after that point, the Fed will continue to reinvest the proceeds running off its $2.7T portfolio back into Treasuries. He also said that early in the tightening cycle, "one step would be to stop reinvesting all or part of maturing securities." We believe the Fed will stop reinvesting these proceeds back into Treasuries at the same time as they hike rates. And we don’t feel that is likely to happen in 2011. The Fed also updated their Forecasts last given in February.
You will notice below that they have upped their expectations for inflation, but have toned down their economic growth expectations, largely due to high oil and commodity prices.
Updated Fed Forecasts:

GDP Forecast
(Most recent forecast) Apr- 2011: 3.1-3.3%; 2012: 3.5-4.2%; 2013: 3.5-4.3%; Long Run: 2.5-2.8%
(Prior forecast) Feb- 2011: 3.4-3.9%; 2012: 3.5-4.4%; 2013: 3.5-4.6%; Long Run: 2.4-3.0%

Unemployment Forecast
Apr- 2011: 8.4-8.7%; 2012: 7.6-7.9%; 2013: 6.8-7.2%; Long Run: 5.2-5.6%
Feb- 2011: 8.8-9.0%; 2012: 7.6-8.1%; 2013: 6.8-7.2%; Long Run: 5.0-6.0%

PCE Inflation Forecast
Apr- 2011: 2.1-2.8%; 2012: 1.2-2.0%; 2013: 1.4-2.0%; Long Run: 1.7-2.0%
Feb- 2011: 1.3-1.7%; 2012: 1.0-1.9%; 2013: 1.2-2.0%; Long Run: 1.6-2.0%

Core PCE Inflation Forecast
April- 2011: 1.3-1.6%; 2012: 1.3-1.8%; 2013: 1.4-2.0%; Long Run: N/A
Feb- 2011: 1.0-1.3%; 2012: 1.0-1.5%; 2013: 1.2-2.0%; Long Run: N/A
In today's economic news, the Commerce Department reported that the 1st look, or Advanced reading, of 1st Quarter Gross Domestic Product (GDP) fell to 1.8%, down from the Q4 2010 reading of 3.1% led by declining consumer spending and government spending. This was a weak reading, but it was actually higher than expectations and much better than some whisper numbers of a sub 1% reading. This is backward looking, but nonetheless, Stocks lost some ground on the number, thereby helping Bonds.
But the real rotten egg this morning was Initial Jobless Claims, which sadly climbed to 429,000 for the week, well above both expectations and that psychologically important 400K barrier. Unfortunately, the pain in the labor market has not been "transitory". And seeing Claims rise back above 400,000 is not a good thing, as Initial Jobless Claims are a leading indicator on the health of the economy. This is an area where the Fed has very limited capacity to help. And because of the pick up in inflation – which Bernanke acknowledged yesterday – we should not expect continued government support of the economy, or another round of QE, which can fan the flames of inflation.

All Thats Happening!

2011-03-21T12:36:00.003-07:00

>> Market Update
QUOTE OF THE WEEK..."To a journalist, good news is often not news at all."--Phil Donahue

INFO THAT HITS US WHERE WE LIVE...Well, journalists had plenty of their kind of news to write about with last week's housing reports. The bad stuff began with February Housing Starts dropping 22.5% to a level close to the April 2009 low, which was the lowest on record. Most of the drop was from multi-family starts, which are volatile on a monthly basis. Single-family starts were down 11.8%. New Building Permits fell 8.2% for February. This gauges activity a few months out, indicating starts in the Spring ought to be up a bit from now.

Nonetheless, experts feel building and sales activity should normalize to much higher rates in the next few years. The population is growing and aging housing stock needs to be replaced. Analysts say builders usually need to put up at least one million homes a year to keep up with these demands. Maybe that's why an industry index of builder sentiment actually ticked up a point for March, putting it at its highest level since May 2010, when the homebuyer tax credits were making everyone feel good.

BUSINESS TIP OF THE WEEK...Don't forget to smile. You may think people buy from you because of price, quality and the fact you stand behind your work. Those factors count, but ultimately, people buy because they like you.
>> Review of Last Week
MELTDOWN ON WALL STREET...As of Friday, a nuclear disaster at Japan's Fukushima complex had been averted, but that didn't stop stocks from having their own meltdown. Investors sold off holdings, worried over Japan's nuclear crisis, Libya's civil war spreading to other oil producers, as well as the European Union's lingering sovereign debt problems. The market did manage two good days at the end, but they weren't good enough to prevent another weekly drop in all three major indexes, although many people felt things could have been a lot worse.

Economic news was mixed, the negative part being Housing Starts and Building Permits, covered above. On the very positive side was the Philadelphia Fed Index for March showing solid manufacturing growth in that region. Wholesale (PPI) and Consumer (CPI) Inflation were both up more than expected, thanks to higher energy and food prices. But the Fed focuses on Core CPI, which eliminates food and energy, and remains within an acceptable range. It seems like almost everyone but the Fed is concerned about inflation picking up. Homebuyers should note that real estate is still, even now, an excellent hedge against inflation over the long term.

For the week, the Dow ended down 1.5%, at 11,859; the S&P 500 was down 1.9%, to 1,279; and the Nasdaq was down 2.6%, ending at 2,644.

With Japan's nuclear fears prominent in the news all week, investors' "flight to safety" in bonds became a flat-out run. The FNMA 4.0% bond we watch ended up .95 for the week, closing at $99.10. In line with this, Freddie Mac's weekly survey of conforming mortgages showed national average mortgage rates easing a little more in their historically low range. Many economists forecast mortgage rates to rise this year as the economy recovers, but now feel low rates may remain a tad longer than expected.

DID YOU KNOW?...This week's GDP estimate refers to our nation's Gross Domestic Product. This is the total final value of all U.S. goods and services produced in a year: all consumer, investment and government spending, plus the value of all exports, minus the value of all imports. GDP growth is what counts, with 2.5% to 3.0% the historical average.
>> This Week’s Forecast
FEBRUARY HOME SALES AND ANOTHER LOOK AT Q4 GDP...February isn't usually a top month for home sales and the experts don't expect that situation to change. Monday's Existing Home Sales for February are expected to be down from January, coming in at a 5.05M annual rate. But Wednesday's New Home Sales for February should be up slightly from the prior month, at a 288K annual rate.

But the overall economic picture appears to be picking up. The Third Estimate of Q4 GDP is forecast up another 0.1%, to 2.9%, showing that the overall economy continues to grow. Consumers' attitudes are holding steady in the University of Michigan's Sentiment Index for March.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of March 21 – March 25
Date Time (ET) Release For Consensus Prior Impact
M
Mar 21 10:00 Existing Home Sales Feb 5.05M 5.36M Moderate
W
Mar 23 10:00 New Home Sales Feb 288K 284K Moderate
W
Mar 23 10:30 Crude Inventories 3/19 NA 1.745M Moderate
Th
Mar 24 08:30 Initial Unemployment Claims 3/19 384K 385K Moderate
Th
Mar 24 08:30 Continuing Unemployment Claims 3/9 3.700M 3.706M Moderate
Th
Mar 24 08:30 Durable Goods Orders Feb 0.9% 3.2% Moderate
F
Mar 25 08:30 GDP-Third Estimate Q4 2.9% 2.8% Moderate
F
Mar 25 08:30 GDP Deflator-Third Estimate Q4 0.4% 0.4% Moderate
F
Mar 25 09:55 Univ. of Michigan Consumer Sentiment-Final Mar 68.0 68.2 Moderate

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months...The Fed's FOMC Policy Statement last week said that they weren't worried about inflation and that although the economy is improving, the recovery isn't strong enough to withstand a rise in interest rates. So economists are forecasting the Funds Rate to stay where it is well into the second half of the year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Apr 27 0%–0.25%
Jun 22 0%–0.25%
Aug 9 0%–0.25%

Probability of change from current policy:
After FOMC meeting on: Consensus
Apr 27 <1%
Jun 22 <1%
Aug 9 2%

For the week of March 14, 2011

2011-03-15T08:23:00.000-07:00

For the week of March 14, 2011 – Vol. 9, Issue 11

>> Market Update
QUOTE OF THE WEEK..."An economist's guess is liable to be as good as anybody else's."--Will Rogers

INFO THAT HITS US WHERE WE LIVE...Last week there was no guessing involved in the Mortgage Bankers Association (MBA) report that applications for purchase mortgages hit their highest level of the year. The MBA credited this to the improving job market and mortgage rates remaining at super low levels. This demand for purchase mortgages was up 12.5% from the week before and at its highest level since last May. Freddie Mac's weekly survey of conforming mortgages showed mortgage rates pretty much unchanged, at historically low levels for the third week in a row.

Another UCLA Anderson Forecast came out, reporting that the economy is growing and employment should soon pick up steam. But this somewhat pessimistic group of West Coast economists feel housing will continue to lag behind other sectors. Nonetheless, they see a "modest" recovery in housing starts, up 12% this year, then hitting 1 million in 2012 and approaching 1.5 million in 2013, thanks to pent-up demand.

BUSINESS TIP OF THE WEEK...Get out of your comfort zone. Don't keep doing things a certain way just because that's how you've always done them. Be open to new ideas and technology. Things can't change for the better if you're not open to change.

>> Review of Last Week
STOCKS SLIP...All three stock market indexes registered their second weekly decline in the past three weeks. The Middle East continued to concern investors as the disturbances expanded to Saudi Arabia where no one on Wall Street wanted to see them go, fearing even higher oil prices. But Friday we were all shocked by the devastation of Japan's worst earthquake in over 100 years. Oil prices seemed far less of a worry and they actually wound up down for the week.

Economic news was light but net positive. New weekly unemployment claims were up a bit, after dropping the week before, but the four-week moving average is now 392,000, quite a bit below last summer's readings. Continuing unemployment claims dropped to 3.77 million, its lowest level since October 2008! These trends are in the right direction for the country overall and for housing in particular. Friday saw Retail Sales UP 1.0% in February, increasing now eight months in a row, their longest streak of gains in over ten years! Consumers are definitely helping out.

For the week, the Dow ended down 1.0%, at 12,044; the S&P 500 was down 1.3%, to 1,304; and the Nasdaq was down 2.5%, ending at 2,716.

Amidst slipping stocks, bond prices held up, with buying driven by the turmoil in the Middle East and strong auctions. The FNMA 4.0% bond we watch ended up .01 for the week, closing at $98.15. As noted above, Freddie Mac's weekly survey of conforming mortgages showed national average mortgage rates still at historically low levels. But buyers should not expect these rates to last forever, as the economic data continues to improve.

DID YOU KNOW?...The Federal Open Market Committee, or FOMC, is the policymaking body of the Fed. Its meeting this week is one of eight held each year to discuss the economy and monetary policy options to promote stable prices and growth.

>> This Week’s Forecast
HOMEBUILDERS, INFLATION, THE FED...This week highlights three favorite topics. Wednesday we see how homebuilders are feeling, as reflected by February Housing Starts, expected to be down a little, and Building Permits, showing builders' sentiment further out, which should be up a bit.

Tuesday we'll have the FOMC Rate Decision from the Fed. Economists don't expect the Funds Rate to move off its rock-bottom level, but they'll dissect the Policy Statement coming out of the confab for signs of when the rate may go up. Rising inflation can hike the rate, but Wednesday's wholesale inflation (PPI) and Thursday's consumer inflation (CPI) readings are expected to hold steady.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of March 14 – March 18

Date Time (ET) Release For Consensus Prior Impact
Tu
Mar 15 08:30 NY Empire State Manufacturing Index Mar 17.0 15.43 Moderate
Tu
Mar 15 14:15 FOMC Rate Decision 3/15 0%–0.25% 0%–0.25% HIGH
W
Mar 16 08:30 Housing Starts Feb 570K 596K Moderate
W
Mar 16 08:30 Building Permits Feb 573K 562K Moderate
W
Mar 16 08:30 Producer Price Index (PPI) Feb 0.6% 0.8% Moderate
W
Mar 16 08:30 Core PPI Feb 0.2% 0.5% Moderate
W
Mar 16 10:30 Crude Inventories 3/12 NA 2.52M Moderate
Th
Mar 17 08:30 Initial Unemployment Claims 3/12 387K 397K Moderate
Th
Mar 17 08:30 Continuing Unemployment Claims 3/5 3.750M 3.771M Moderate
Th
Mar 17 08:30 Consumer Price Index (CPI) Feb 0.4% 0.4% HIGH
F
Mar 11 08:30 Core CPI Feb 0.1% 0.2% HIGH
Th
Mar 17 09:15 Industrial Production Feb 0.6%
–0.1% Moderate
Th
Mar 17 09:15 Capacity Utilization Feb 76.5% 76.1% Moderate
Th
Mar 17 10:00 Leading Economic Indicators (LEI) Index Feb 0.9% 0.1% Moderate
Th
Mar 17 10:00 Philadelphia Fed Manufacturing Index Mar 28.0 35.9 HIGH

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months...Fed Chairman Ben Bernanke has been adamant about his commitment to keep rates where they are until he sees greater job growth and more traction in the economic recovery. The experts are talking about a rate hike later in the year, but the chances of that now are next to nil. Literally. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

After FOMC meeting on: Consensus
Mar 15 0%–0.25%
Apr 27 0%–0.25%
Jun 22 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Mar 15 <1%
Apr 27 <1%
Jun 22 <1%

Dce

All in Oil!

2011-03-08T06:26:00.000-08:00

"Awash in Oil?"

Friday, I filled up at Costco's discount gas station. Gas cost $3.28 per gallon. That was up from last year by at least fifty cents a gallon, but compared to the reports of $4.00-plus gasoline in California, I felt we were fortunate here in Dallas to be closer to the national average.

When I came to work this morning, I was talking to one of my associates and she mentioned that her son had filled up at the same gas station on Saturday, less than 24 hours after me, before heading back Ft Worth. The cost was $3.47 a gallon - almost a 5% increase overnight!

What's going on? Obviously, the unrest in the Middle East is creating fear that supplies of "black gold" will be reduced. That fear is sending prices higher. Those higher prices are being generated in the futures pits around the world as speculators bid oil higher. While the spot price is about $105 per barrel, the price for future delivery in the commodities markets is over $115.

It's only logical that higher oil prices should affect stocks. But how higher oil prices affect stocks can vary tremendously. Since the Egyptian crisis began, the oil and stock price indices have been moving in opposite directions. An up day in oil prices has meant a down day for stocks. And if oil prices stumble, stocks rally.

This actually is what one would expect, isn't it? If oil goes up, and if most industrial societies run on oil, increasing costs of oil can make production more expensive, causing recovering economies to slow down, earnings to decline and stock prices to sink.

Yet, for much of the last year, oil prices and the S&P 500 have behaved very differently. They were moving in lock step - rising and falling together. In fact, this has been the case since 2008. But their mutual admiration society fell apart in mid-January.

Why the change? At the end of last year, experts were telling us that the world was awash in oil - that prices should remain stable at least through the first half of 2011. Yet here we are just two months and a few days into the New Year and oil prices have increased by about 20%.

This is the supply argument and we are hearing it daily from the stock market bulls. Oil inventories are high, so oil prices are artificially high, driven there solely by the speculators. When politics calm down in the Middle East, prices will reverse just as quickly as they went up.

I must say that I lean toward this camp as well. Oil supplies have not changed appreciably since last fall when we were awash in oil. In fact, according to the most recent figures from the Department of Energy, the stockpile of oil is 1.4% above levels from last year and inventories are 4% above their 5-year average.

And just last week, Treasury Secretary Geithner declared that the US might just have to draw on its Strategic Petroleum Reserves to cool things off. While I would hope this is not just an attempt at political jawboning by the Administration, a closer look suggests that it is and that it is a hollow threat.

According to information on the Department of Energy's website, the Strategic Petroleum Reserve holds only 727 million barrels. That's significant, but still accounts for just about two and a half months of our needs.

What's more, the impact from releasing oil from the SPR would not be immediate. The DOE says the maximum drawdown per day is just 4.4 million barrels and that it would take nearly two weeks after a decision is made to tap the SPR before that oil actually hits the US market.

Of course, our friends, the Saudi's and our partners at OPEC have also tried to assure us, saying they would increase production if prices stay high. But in the past these assurances have been empty ones. And today, the head of OPEC weakened the assurances by stating that reserves would have to shrink before cartel members would actually take any action.

In the meantime, whether the bulls or the bears are correct, the stock market seems likely to be held hostage by our Middle East suppliers. With Gulf oil drilling rigs down over 75% from a year ago due to the Administration's restrictive position on Gulf of Mexico drilling (although, I note they did just award the first post-spill drilling permit today - perhaps they're feeling the heat and are going to make a policy announcement that could have a tangible effect), a further increase in US oil supplies seems unlikely to help in the intermediate term.

As the earnings season has ended and interest rates are moving up along with the price of oil, these usual bull market girders are not supportive in the short run. The most positive factor for the stock markets today is the constant drumbeat of good news about the economy. Last week we had 24 reports and 15 of them beat expectations. The employment and manufacturing numbers were especially heartening.

I continue to believe that we are in for a stock market correction, that it will be shallow, and that the stocks will bounce back to set new highs later this year.

The Weekly Java!

2011-03-07T08:41:00.000-08:00

QUOTE OF THE WEEK..."There are no constraints on the human mind, no walls around the human spirit, no barriers to our progress except those we ourselves erect."--Ronald Regan

INFO THAT HITS US WHERE WE LIVE...We should be especially careful to not erect barriers to our progress just because of a minor setback, like the one we had with last week's Pending Home Sales. The National Association of Realtors (NAR) index of signed contracts on existing homes slipped in January for the second month in a row. But the drop wasn't as bad as expected and, as the NAR's chief economist said: "We should not expect the recovery to be in a straight upward path--it will zig-zag at times."

The latest NAR overall forecast gave an interesting picture of that recovery. Existing home sales should grow 8.1% this year and another 5.2% in 2012, with the median price essentially flat in 2011 before gaining over 3% next year. New home sales are forecast up about 5% this year, then up over 55% for 2012, with the median price up a bit in 2011, then up 3.5% next year. Fannie Mae's latest National Housing Survey reported that the vast majority of people believe housing prices will hold firm in 2011 and that Hispanics, African-Americans and Generation Y (18–34 years old) are more positive than other Americans about homeownership.

BUSINESS TIP OF THE WEEK...Do you know what's the most precious commodity in business? Time! Return calls and e-mails immediately, deliver what clients want sooner than they expect and you'll enhance your competitive edge.

>> Review of Last Week
SQUEAKING HIGHER...Investors who were worried about oil prices hitting two-year highs amidst Libyan turmoil sent stocks down Tuesday. But economic data continued to portray a steady if slow recovery. So stocks shot back up Thursday by enough to put all three indexes ahead for the week, even after dipping a bit on Friday.

Encouraging economic news appeared on all fronts. The ISM Services index, tracking the sector that employs over 85% of our workforce, reached its highest level since 2005. ISM Manufacturing also hit a multi-year high. Meanwhile, inflation measured by Core PCE Prices, was up just 0.1% in January and 0.8% the past year, well within the Fed's acceptable range. Then Friday we had the February Employment Report with 192,000 new jobs overall. The private sector contributed 222,000 jobs, its 12th monthly gain in a row. And the unemployment rate unexpectedly dropped again, this time to 8.9%!

For the week, the Dow ended up 0.3%, at 12,170; the S&P 500 was up 0.1%, to 1,321; and the Nasdaq was up 0.1%, ending at 2,785.

Bond prices were hurt by the improving economic data, but went back up as a result of the safe-haven buying driven by continuing tensions in the Middle East and rising oil prices. The FNMA 4.0% bond we watch ended down slightly for the week, closing at $98.14. Mortgage rates dropped for the third week in a row according to Freddie Mac's weekly survey of conforming mortgages. But buyers should note that these low rates will not last forever, as the improving employment picture will eventually edge them back up.

DID YOU KNOW?...The median home price is the midpoint price for all homes sold. 50% of selling prices were above it, 50% were below. It is less biased than the average home price, which can be skewed upward by a few high-priced homes.

>> This Week’s Forecast
WHAT'S UP WITH THE CONSUMER?...Frankly, it's a pretty quiet week for economic news, but there are a few significant readings on the state of the consumer at the very end. Friday we see February's Retail Sales reports, which are expected to show continued growth, both with and without auto sales included. The University of Michigan Consumer Sentiment Index should show consumer confidence holding pretty steady. Thursday, you'll want to take note of Initial and Continuing Jobless Claims, as jobs remain key to the economic and housing market recovery.

Alan R. Felch
214-683-1770
homeloanapproval.com

The Market Week

2011-02-21T07:05:00.000-08:00

>> Market Update
Quote of the week... "I've been blamed for just about everything that's wrong with this country."--Elvis Presley

INFO THAT HITS US WHERE WE LIVE... We who work in the real estate and mortgage industries know exactly how Elvis felt. The same people who unfairly blamed us totally for the recession now look to us alone for signs the economic recovery has taken hold. They might want to remember the health of the housing market is directly dependent on the health of the jobs market, which is not under our control. In any case, everyone felt better last week when January Housing Starts were UP a surprising 14.6%. Even though starts are down 2.6% from a year ago, this still shows builders are more hopeful going forward. The boost came from multi-family units, though single-family starts were off a mere 1% for the month.

A lot of home buying activity is due to the affordability now out there. The National Association of Home Builders (NAHB) and a major bank reported their index shows home affordability in Q4 of 2010 at its highest level in 20 years. Their measure found that 73.9% of the new and existing homes sold in Q4 were affordable to families making the national median income of $64,400.

Business tip of the week... A big part of success is not giving up. Studies show that one trait shared by all very successful people is perseverance. They are persistent, determined, tenacious, pursuing a goal far beyond the point where the average person gets discouraged.
>> Review of Last Week
THE BULLS KEEP CHARGING... It's not like the running of the bulls at Pamplona just yet, but the bulls on Wall Street are definitely picking up steam. We had another weekly gain in the stock market as the three major indexes were up around 1% and the Dow and the S&P 500 hit new two-year highs. The Nasdaq reached a three-year high, just short of its 2007 peak. If the stock markets are a leading indicator of the overall economy, the recovery should pick up steam as the year goes on.

There were worries over rising Chinese interest rates and disruptions in the Middle East, but these were dispelled by the economic reports. The consumer is key to the recovery, so it was good to see retail sales are now UP seven months in a row. Inflation was a little hotter than expected, as year-over-year, the Core Consumer Price Index is now up 1.0%. Core CPI, the Fed's key inflation reading, is still within their target range and observers feel deflation concerns are now put to rest.

In other news, the Empire State Index showed manufacturing continuing to expand. This is great, though the jobs recovery depends on the services sector, where over 85% of the workforce is employed. Fortunately, that sector is expanding at its fastest pace in five years. Let's hope the jobs follow.

For the week, the Dow ended UP 1.0%, at 12,391; the S&P 500 was also UP 1.0%, to 1,329; and the Nasdaq went UP 0.9%, ending at 2,834.

Even with the stock surge, bond prices held on. Inflation was a little hotter than expected, but still tame. The FNMA 4.0% bond we watch ended up 18 basis points for the week, closing at $97.18. Mortgage rates, which had been inching up, fell back a bit. Freddie Mac's weekly survey of conforming mortgages showed national average fixed-rate mortgage rates remained near historic lows.
>> This Week’s Forecast
JANUARY HOME SALES, CONSUMER MINDSET, Q4 GDP... Happy Presidents Day! The markets will be closed Monday but then we'll have some important economic reports. January Existing Homes Sales on Wednesday are expected to be a tad off December's pace. The same goes for January New Home Sales on Thursday.

The week begins and ends with readings on the consumer mindset. Tuesday's Consumer Confidence is forecast up for February while Friday's Michigan Consumer Sentiment should hold steady. January Durable Goods Orders are predicted to be growing again, a sign business is investing in capital equipment and, perhaps next, in jobs. Friday, we get the second estimate of Q4 GDP, expected to be up a bit from the original estimate.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of February 21 – February 25
Date Time (ET) Release For Consensus Prior Impact
Tu
Feb 22 10:00 Consumer Confidence Feb 67.0 65.6 Moderate
W
Feb 23 10:00 Existing Home Sales Jan 5.23M 5.28M Moderate
Th
Feb 24 08:30 Durable Goods Orders Jan 3.0% –2.3% Moderate
Th
Feb 24 08:30 Initial Unemployment Claims 2/19 410K 410K Moderate
Th
Feb 24 08:30 Continuing Unemployment Claims 2/12 3.900M 3.911M Moderate
Th
Feb 24 10:00 New Home Sales Jan 310K 329K Moderate
Th
Feb 24 11:00 Crude Inventories 2/19 NA 0.86M Moderate
F
Feb 25 08:30 GDP – Second Estimate Q4 3.3% 3.2% Moderate
F
Feb 25 08:30 GDP Deflator – Second Estimate Q4 0.3% 0.3% Moderate
F
Feb 25 09:55 U. of Michigan Consumer Sentiment – Final Feb 75.1 75.1 Moderate

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months You hear a lot more experts now disagreeing with Fed policy, including some Fed members. But Fed Chairman Bernanke seems determined to keep the Funds Rate at its rock bottom level until we see stronger signs of economic growth and jobs recovery. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Mar 15 0%–0.25%
Apr 27 0%–0.25%
Jun 22 0%–0.25%

Probability of change from current policy:
After FOMC meeting on: Consensus
Mar 15 <1%
Apr 27 <1%
Jun 22 2%

Market Update

2011-02-14T12:33:00.001-08:00

>> Market Update
INFO THAT HITS US WHERE WE LIVE... Last Thursday the National Association of Realtors (NAR) came through with the encouraging report that sales of existing single-family homes and condominiums in Q4 of 2010 increased over Q3 in 49 out of 50 states -- a 15.4% rise for the three-month period. However, sales were down 4.78% for the year, to an estimated 4.91 million, from their 5.16 million level the year before. Fueled by the homebuyer tax credit, that higher 2009 sales rate was deemed "unsustainable" in 2010 by the NAR.

Home prices, on the other hand, appear to be stabilizing. The NAR revealed that the national median existing single-family home price in Q4 of 2010 stayed essentially flat versus Q4 a year ago, coming in at $170,600. Here's a good sign that prices are beginning to climb off the bottom: median prices in Q4 of 2010 rose in 78 of 152 metro areas compared to Q4 a year ago. The NAR's chief economist added the pleasant thought, "An improving housing market and job growth will go hand in hand. The housing recovery will mean faster job growth." Let's hope he's right!
>> Review of Last Week
BULLS STILL IN CHARGE... The Wall Street bulls aren't yet on a charge, but they're definitely in charge, as they sent stocks higher for another week. The Dow-Jones Industrial Average stayed above the 12,000 threshold it crossed the prior week, the broadly-based S&P 500 shot up 1.4% and the tech-heavy Nasdaq saw a 3.1% gain, which would be impressive in any economic environment. Investors are feeling better about the economy, even though last week included some things which certainly would cause economic worry in more bearish settings.

We can start with Egypt, which was all over the news media, but had little visibility to the investment community. Before the market closed Friday, President Mubarek stepped down, as stocks tapered off with a 44-point gain on the day. We also had China increasing its lending rates to slow down inflation and its economy. Here on our shores tech giant Cisco surprised analysts with a disappointing outlook. Their downside guidance came because they see pressure on their profit margins in the coming year.

The Cisco situation was especially interesting in light of the fact that the main impetus for the strongly upside week came from some compelling corporate news. Walt Disney reported upside results that sent its stock to a record high. Coca-Cola met its earnings estimates on very strong volume growth. 3M boosted its quarterly dividend by 5% and told of a $7 billion share repurchase plan. A sparse week of economic indicators was highlighted by December's trade report showing imports UP 12.8% and exports UP 13.7% in the last year. We also had initial jobless claims dropping to 383,000, their lowest level since July 2008, while continuing claims fell to 3.89 million. University of Michigan Consumer Sentiment showed an increase over the prior month.

For the week, the Dow ended UP 1.5%, at 12,273; the S&P 500 was UP 1.4%, to 1,329; and the Nasdaq shot UP 3.1%, ending at 2,809.

Home Sales and Rate Trends

2011-01-24T06:32:00.001-08:00

>> Market Update
INFO THAT HITS US WHERE WE LIVE... Thursday saw Existing Home Sales shoot up 12.3% in December, to an annual rate of 5.28 million, well ahead of the 4.87 million rate the consensus expected. Overall, existing home sales are off 2.9% compared to a year ago, but that's when sales were artificially boosted by the homebuyer tax credits. All regions showed sales gains in single family homes, condos and coops.

The supply of existing homes dropped to 8.1 months from 9.5 months in November. The pace of existing home sales is up 38% since July and sales are now only around 5% off the long-term trend, which has been a 5.5 million annual pace. All this has happened without government tax credit support. Smart buyers don't want to miss out on housing affordability that's at its highest level in 40 years.

Earlier in the week we saw housing starts drop 4.3% for December to a 529,000 unit annual rate. But colder temperatures and more snow than usual slowed starts in many parts of the country. Home completions actually increased for the month, while building permits shot up a strong 16.7%, to a 635,000 annual rate. We're not out of the woods yet, as permits are off 6.8% from a year ago and starts are down 8.2% compared to last year.
>> Review of Last Week
SHORT WEEK FALLS SHORT... The holiday shortened week ended its four days of trading with only the Dow ahead, the S&P 500 and the Nasdaq both dropping a bit. What bothered investors were some Q4 corporate earnings that fell short, plus more worries that China will hike its interest rates to cool down an overheating economy, already growing at about a 10% annual rate.

Earnings disappointments included a couple of the big financials, although three others in the sector beat expectations. Beyond that, General Electric, IBM, and Google all reported strong, better than expected Q4 earnings. GE even went so far as to forecast increasing profits in the years ahead. Apple then showed up to hit the ball out of the park with Q4 revenues up 70.5% year over year, blowing estimates out of the water with ease. But it was unfortunate to learn that Apple CEO Steve Jobs is taking another indefinite leave to deal with health challenges.

The Empire State Index, which gauges manufacturing in New York, grew to 11.9 in January from 9.9 the previous month, reflecting manufacturing gains across the country. New weekly unemployment claims dropped by 37,000, putting the four-week moving average at 412,000, its lowest level since July 2008. Meanwhile, continuing claims dropped to 3.86 million, their lowest number since October 2008. The Philadelphia Fed Index of manufacturing activity in that region was down in January, but the Leading Economic Indicators (LEI) index was up, better than expected.

For the week, the Dow ended up 0.7%, at 11872; the S&P 500 was off 0.8%, to 1283; and the Nasdaq dropped 2.4%, ending at 2690.

Bonds were under pressure last week, with yields going up as prices headed down. The FNMA 4.0% bond we watch ended down 83 basis points for the week, closing at $98.31. According to Freddie Mac's weekly survey of conforming mortgages, average fixed-rate mortgage rates changed little, remaining at super low levels. Tame inflation is the reason, with core consumer prices compared to December 2009 up a paltry 0.8%, their smallest yearly gain since 1958.
>> This Week’s Forecast
THE FED, PLUS OUR FAVORITE TOPIC... There's another Fed meeting this week to grab everyone's attention, but no one expects a hike in the Funds Rate quite yet. The FOMC statement will be closely examined to see how the nation's central bank views our economic recovery. The housing part of that recovery will also be covered with Wednesday's December New Home Sales, expected to be up slightly from the prior month. But Thursday's Pending Home Sales for November should be down slightly for existing homes.

The week is bookended with readings on the consumer. Tuesday's Consumer Confidence and Friday's Michigan Consumer Sentiment are both forecast to be improving in January. Finally, we close the week with the advanced Q4 GDP number, expected to come in at a solid 3.8% annual growth rate.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of January 24 – January 28
Date Time (ET) Release For Consensus Prior Impact
Tu
Jan 25 10:00 Consumer Confidence Jan 53.5 52.5 Moderate
W
Jan 26 10:00 New Home Sales Dec 300K 290K Moderate
W
Jan 26 10:30 Crude Inventories 1/22 NA 2.62M Moderate
W
Jan 26 14:15 FOMC Rate Decision 1/26 0%-0.25% 0%-0.25% HIGH
Th
Jan 27 08:30 Initial Unemployment Claims 1/22 408K 404K Moderate
Th
Jan 27 08:30 Continuing Unemployment Claims 1/22 3.835M 3.861M Moderate
Th
Jan 27 08:30 Durable Goods Orders Dec 1.5% -0.3% Moderate
Th
Jan 27 10:00 Pending Home Sales Nov -0.5% 3.5% Moderate
F
Jan 28 08:30 GDP-Adv. Q4 3.8% 2.6% Moderate
F
Jan 28 11:00 GDP Chain Deflator-Adv. Q4 1.6% 2.1% Moderate
F
Jan 28 08:30 Employment Cost Index Q4 0.4% 0.4% HIGH
F
Jan 28 08:30 Univ. of Michigan Consumer Sentiment-Final Jan 73.0 72.7 Moderate

>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months Rumblings have begun that the Fed is sure to hike the Funds Rate in the second half of the year. But with inflation still well under control, economists do not expect any rate increases for the next few months. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Jan 26 0%–0.25%
Mar 15 0%–0.25%
Apr 27 0%–0.25%

Probability of change from current policy:
After FOMC meeting on: Consensus
Jan 26 <1%
Mar 15 <1%
Apr 27 <1%

Things to Know About Buying Home

2011-01-13T18:21:00.000-08:00

Things to know about buying a home now...

With the start of the new year, there's lots of talk about where home prices, mortgage rates and home sales in general are headed. If you're thinking about buying a home in the near future, here are some points to ponder:

Prices are now at all-time lows. According to the National Association of Realtors (NAR) housing affordability index, home prices are more affordable now than during any other time in our history going back to 1970. In addition, this time of year is especially good for buyers, because activity has slowed down. The school year in full swing and the holiday season cuts the number of active buyers, so sellers are especially motivated to make a deal.

It's a good time to buy if you plan to stay awhile. A home is still a good investment, just don't expect the house you buy today to deliver a big jump in value right away. The NAR's chief economist says, "Despite very attractive affordability conditions, a housing market recovery will likely be slow and gradual...." But if you plan to stay in your home more than a few years, your investment should beat inflation. According to Department of Labor statistics, for the ten years from 7/1/2000 to 6/30/2010, the average home increased in price 3.4% per year in the US. Inflation measured by the CPI (Consumer Price Index) went up 2.4% per year in the same period.

Mortgage rates are still at historic lows. National average mortgage rates are at their lowest levels in history. You may have heard about rates inching up a little lately, but "inching" is truly the operative word. National average mortgage rates are still below where they were at the start of last year. The important thing to remember is that lower rates increase your buying power by allowing you to qualify for a larger loan amount.

You're in the driver's seat. It's still a buyer's market, so many sellers are prepared to negotiate to close the sale and move on with their lives. Price and appliances for instance are all things that can be up for discussion – you just have to test the waters. But remember, when home prices stabilize and start to head up, sellers won't be in the same bargaining mood. At that point, sellers could regain the upper hand as buyers compete with each other to purchase before prices go up more.

Don't forget the tax benefits. Buying a home gives you some nice tax breaks. Interest on your mortgage and real estate taxes are both tax deductable. If you pay points to reduce your loan's interest rate, that money may also be deductible. Please consult with a tax advisor to find out how these deductions apply to your circumstances.

You want choice? Now you've got it! In many areas of the country, home buyers are feeling like kids in a candy store. There are many nice options to explore. Just don't get overwhelmed. Figure out what you want in a home, a neighborhood that's right and what you can afford to pay – then go enjoy the shopping experience.

It's easy to get started. The first thing to do is to get qualified for a mortgage. This tells you how much money a lender is willing to loan you, so you know exactly what you can afford. Being qualified also strengthens your position when making an offer because the seller knows you're a pre-approved borrower. Please contact us and we'd be happy to help you through this process.

There may never be a better time to buy. One thing's for sure, mortgage rates and home prices won't stay at these historic levels forever. When you find a home you fall in love with, don't let it get away. Remember, you want the best home, not just the best deal, and holding off on a purchase for things to improve, could lose you the home of your dreams.

Feel free to call or email us about these or any matters relating to home financing or refinancing. We're glad to talk further about any of these topics... Have a great day!

End of the Yaer Wrap Up

2010-12-27T05:44:00.000-08:00

INFO THAT HITS US WHERE WE LIVE Housing was more affordable in November than at any time in the last 40 years. So it should come as no surprise that Existing Home Sales were UP 5.6% for November, bringing them to an annual rate of 4.68 million, a tad above the expected 4.65 million rate. Sales were up for single-family homes, although down for condos and coops, and all regions of the country registered gains.

The median price increased to $170,600 in November (not seasonally adjusted) and that figure is UP 0.4% over a year ago. The FHFA index of prices for homes bought with conforming mortgages also was up 0.7% in October (seasonally-adjusted), its first gain since May. The months' supply dipped to 9.5, with a decline in overall inventories.

Thursday saw new single-family home sales UP 5.5% for November, to a 290,000 annual rate, a little short of expectations. The months' supply of new homes dropped to 8.2 from October's 8.8 level. The new homes inventory is now down to 197,000, 65.6% off its 2006 peak, and the lowest inventory level going back to 1968. The median selling price went up to $213,000, after dipping under $200,000 in October.

The Economy is Stronger!

2010-12-22T14:26:00.000-08:00

The Final Reading for 3rd Quarter Gross Domestic Product (GDP) was reported this morning at a 2.6% pace, slightly better than the previous reading but a bit lower than the 2.7% anticipated. Some optimistic "whisper numbers" - or gossip in the trading pits - had called for a reading north of 3%. However, we think, a deeper look into the number does raise concerns, as the gains came mostly from an upward rise in inventories, which offset a downward revision in household purchases. Now think about that - rebuilding inventory just means restocking of shelves, which would be normal ahead of the holiday season, and this particular type of gain has a "shelf life" (ahh…no pun intended, of course). At some point, consumer demand is what is needed to fuel GDP moving higher in a sustainable fashion, and that will in turn help create jobs.
Looking back at last year - for 2010 overall, the economy grew 3.7% in the 1st quarter, 1.7% in the 2nd quarter and 2.6% in the 3rd quarter. In order to create meaningful jobs and put a dent in the unemployment rate, we need to see GDP consistently above 3.5% - and it is likely GDP will be coming in less than that for most of 2011.
It will be interesting to see how the tax cut package and the remaining $450B+ dose of QE2 can help GDP. We expect to see an improved economy - but how much and how soon remains to be seen. Fortunately for the economy, inflation expectations have already ticked higher, as experts believe the Fed will meet their goal of creating inflation. (However, this is not fortunate for Bonds and home loan rates, as we've all been experiencing in recent weeks.) Yet this story isn't over - we need to see how inflation, GDP and jobs fare over the next couple months, which will give us a much better idea of the strength of the economy, and how soon it might be self sustaining, free from government support.
Good news from the housing sector - Existing Home Sales numbers arrived for November at 4.68M, better than expectations, as well as a nice pick up from October's numbers of 4.43M. Additionally, the inventory of unsold homes declined to a 9.5 month supply, a good drop from the prior month's 10.5 month supply. Encouraging news, as it shows that sidelined buyers are starting to dip their toes in the water - and with rates still relatively low, combined with affordable home prices, it remains an incredible time to buy.

Markets and the Holiday

2010-12-20T06:16:00.001-08:00

Last Thursday it was good to see that Housing Starts picked up for November, rising 3.9% for the month to an annual rate of 555,000 units. This beat expectations and was especially gratifying because all the gain came from a 6.9% increase in single-family starts. These have now been up three out of the last four months.

Multi-family starts were down for the fourth month in a row, but these are very volatile on a monthly basis. In fact, the 12-month moving average for multi-family starts is still trending higher, up 5.9% compared to a year ago. The demand for multi-unit residences should continue to grow, which is why some observers foresee a large rebound in multi-unit construction in the new few months. Although there are still excess housing inventories, they are falling quickly and experts expect them to drop further, even with a home building recovery.
>> Review of Last Week
THREE IN A ROW... Investors sent stocks higher for the third straight week on Wall Street. The markets weren't exactly on fire, as volumes were low, which is typical for this time of year, and investors remain guardedly optimistic, which has been their attitude since last month's elections. As happens so often, the week's festivities were driven by the economic headlines and there certainly were plenty to ponder.

The consumer appears to be showing up for the holidays, as retail sales went up 0.8% in November, up 1.2% excluding autos. Including revisions to September and October numbers, overall sales were up 1.5% for the month. Retail is now UP 7.7% over a year ago, and sales are up at a 12% annual rate for the past five months! On the worrisome side, the November Producer Price Index (PPI) showed wholesale inflation up 0.8%, although the Consumer Price Index (CPI) rose a benign 0.1%. Consumer prices are up 1.1% over a year ago, which is good, but wholesale prices are up 3.5% for the year, which isn't so good if you want to keep inflation in check and interest rates down.

The jobs recovery is key to the housing rebound, so it was good to see new unemployment claims falling again last week, to 420,000. This beat expectations and was the second lowest number this year for weekly claims, which have now fallen three times in the last four weeks. The Philadelphia Fed index showed manufacturing continues to grow in that region, as it was up nicely for December. Likewise, the Empire State index showed New York manufacturing coming back strong in December after last month's dip. November Industrial Production rose above expectations and capacity utilization showed factories at their highest volume levels since October 2008.

For the week, the Dow was UP 0.7%, to 11491.91; the S&P 500 was UP 0.3%, to 1243.91; and the Nasdaq was UP 0.2%, to 2642.97.

With investors feeling more upbeat about the economy, money flowed into stocks and out of the bonds that fund most mortgage loans. The FNMA 30-year 4.0% bond we watch ended down 78 basis points for the week, closing at $98.22. This inched mortgage rates higher once again. Freddie Mac's weekly survey of conforming mortgages had the average 30-year fixed-rate mortgage rate up for the fifth week in a row. Rates are still historically low, but people looking to purchase or refinance should be aware that the low-rate party may soon be over.
>> This Week’s Forecast
HOUSING, INFLATION AND THE OVERALL ECONOMY... This week we get to see how the economy is coming along in some key areas. We track the housing recovery with Wednesday's Existing Home Sales and Thursday's New Home Sales, both expected to be up a bit for November. Continuing the theme of a steady if slow recovery, the third estimate of GDP should show the overall economy growing at a 2.7% annual rate, up from the prior 2.5% estimate. Again, a slower rate of growth than economists would like to see, but growth nonetheless.

Thursday brings more inflation readings, with both Personal Spending and Core PCE Prices expected to remain under control. The final December reading on University of Michigan Consumer Sentiment may be up a small amount, while November Durable Goods Orders may be down a tad. The markets will be closed Friday.

Happy Holidays to you and yours during this joyous season!

Is the Party Over?

2010-12-18T06:54:00.001-08:00

Is the low interest rate party over? No one can say for sure...but recently mortgage rates have begun to move up. What we can say for sure is that rates can’t stay at historic lows forever and now may be the perfect time to refinance or purchase your dream home. So if you or anyone you know may be thinking about home financing please have them contact us right away, because the party may be over soon!

Money Facts

2010-12-11T04:38:00.000-08:00

More about money – some interesting info...

Money might not buy happiness, but it does make the world go round and everybody seems to want to get their hands on it. Here are some intriguing details about our currency:

What's the biggest bill ever issued? The $100,000 Gold Certificate of 1934. President Woodrow Wilson's portrait was on these bills, which were only used by Federal Reserve banks and never went into general circulation.

How much of our money is in dollar bills? In fiscal year 2009, 42.9% of the bills printed were $1 notes.

How long does money last? Money may not stay long in your wallet, but it does hang around for a while out in the world. The government reports these average life spans for the various bills: $1 - 42 months; $5 - 16 months; $10 - 18 months; $20 - 24 months; $50 - 55 months; and $100 - 89 months. When bills are too worn, they're pulled from circulation and replaced. Coins last about 25 years.

How many pennies would it take to stretch across the country? It takes 84,480 pennies to cover a mile and over 250 million of them to go coast to coast. That adds up to over $2.5 million.

Did any bill ever have a picture of a woman? Martha Washington's portrait was on the face of the 1886 and 1891 $1 Silver Certificates and on the back of the ones issued in 1896.

Has a portrait of an African American ever been on U.S. currency? Commemorative coins in the 1940s had pictures of George Washington Carver and Booker T. Washington and a recent one honored Jackie Robinson. No paper money has had an African American's portrait, but the signatures of four African American Registers of the Treasury have been on our bills – Blanche K. Bruce, Judson W. Lyons, William T. Vernon, and James C. Napier – as well as the signature of one African American woman, Azie Taylor Morton, the 36th Treasurer of the United States, who served from 1977 to 1981.

What kind of paper do they use to print money? They don't. Our bills are a 75% cotton - 25% linen blend with silk fibers throughout. This is far more durable than paper when wet.

How tough is our money? Government tests show our bills can be folded forward and backward 4,000 times before they tear.

What is that eye at the top of the pyramid? The "all-seeing eye" is a symbol of divine providence.

E Pluribus Unum – what's it mean? This Latin motto means, "Out of many, one." It can be freely translated as, "Many uniting into one." It has been on the Great Seal of the United States since 1782, but didn't wind up on our money until 1902.

Is a torn bill still worth something? The U.S. Bureau of Engraving and Printing (BEP) says on their website: "The BEP redeems partially destroyed or badly damaged currency as a free public service....The Office of Financial Management, located in the BEP, uses experts to examine mutilated currency and will approve the issuance of a Treasury check for the value of the currency determined to be redeemable."

Our final point about money has to do with saving some on your mortgage. Please note that mortgage interest rates are still at historically low levels and many observers think there may never be a better time to purchase or refinance a home than now. Feel free to contact us about any matters relating to home financing or refinancing.

Most importantly, we wish you and your loved ones all the best this holiday season – and a happy and prosperous New Year!

... Have a great day!

HomeLoanApproval.com

For the week of December 6, 2010

2010-12-06T12:02:00.000-08:00

For the week of December 6, 2010 –
>> Market Update

INFO THAT HITS US WHERE WE LIVE Last Thursday the National Association of Realtors (NAR) reported Pending Home Sales for October UP 10.4% over the month before. This index is a measure of signed purchase contracts, which bodes well for Existing Home Sales a couple of months out. The NAR's chief economist commented, "It is welcoming to see a solid double-digit percentage gain, but activity needs to improve further to reach healthy, sustainable levels. The housing market clearly is in a recovery phase and will be uneven at times, but the improving job market and consequential boost to household formation will help the recovery process going into 2011."

Tuesday, the S&P/Case-Shiller home price index was down 0.8% in September for the 20 largest metro areas in the country. This was the third month in a row the index dipped, but national average home prices are still up 0.6% versus a year ago. Prices are also 3.2% above the May 2009 bottom and some analysts do not expect prices to go below that level. Opinions differ, however. Check out this map on the risk of price declines in various parts of the country: http://www.smartmoney.com/tools/worksheets/?story=SMARTMONEYMARKET101115

>> Review of Last Week

BAD JOBS, GOOD WEEK... The week ended on a November Jobs report that delivered less-than-expected payroll gains and a slightly higher unemployment rate, but Wall Street basically shrugged it off. In fact, there was enough good economic news that investors sent all three stock market indexes UP solidly for the week.

Let's start with those disappointing employment numbers. Non-farm payrolls grew in November by 39,000, but the consensus expected 150,000. But September and October revisions added 38,000 jobs, taking the net gain to 77,000. Payrolls in the private sector were up 50,000, their eleventh straight monthly gain, and prior months' revisions added 6,000, for a net gain of 56,000. No one was happy to see the unemployment rate creep up to 9.8%, but with growing payrolls, more people are jumping back into an improving jobs market, so the workforce is growing. New weekly jobless claims also grew, but the four-week moving average dropped to its lowest level in over two years.

More obvious good economic news came in the form of the rising October Pending Home Sales figure reported above. Q3 Productivity was also UP 2.3% annually and UP 2.5% over last year. Both Chicago manufacturing and Consumer Confidence numbers were UP and the ISM Services index came in better than expected, as did same store retail sales. Even all the recent fears over European debt subsided, with the European Central Bank President hinting at more support for the region.

For the week, the Dow was UP 2.6%, to 11382.09; the S&P 500 was UP 3.0%, to 1224.71; and the Nasdaq was UP 2.2%, to 2591.46.

Even though bonds first benefited from the disappointing jobs report, prices eventually came under pressure from money flowing back into rallying stocks. The FNMA 30-year 4.0% bond we watch ended down 89 basis points for the week, closing at $100.20. National average rates for fixed-rate mortgages headed north a tad, according to Freddie Mac's survey of conforming mortgage rates. They're still at historically low levels, but wise buyers and refinancers shouldn't wait.

>> This Week’s Forecast

TAKING A BREAK... After last week's busy schedule of economic news, we'll be taking a bit of a breather this week. The weekly Initial Unemployment Claims and Continuing Claims will continue to hold our interest and are expected to show a slowly strengthening jobs picture. Friday's October Trade Balance is forecast to hold steady. Right after that, we'll see a reading on the University of Michigan Consumer Sentiment Index, which is expected to keep tracking upward.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of December 6 – December 10

Date Time (ET) Release For Consensus Prior Impact

W

Dec 8 10:30 Crude Inventories 12/4 NA 1.07M Moderate

Th

Dec 9 08:30 Initial Unemployment Claims 12/4 430K 436K Moderate

Th

Dec 9 08:30 Continuing Unemployment Claims 11/27 4.250M 4.270M Moderate

F

Dec 10 08:30 Trade Balance Oct –$44.4B –$44.0B Moderate

F

Dec 10 09:55 Univ. of Michigan Consumer Sentiment Dec 72.5 71.6 Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months All the experts still feel the Fed Funds Rate will stay at its super low level through the first half of next year. A threat of inflation, or a strengthening of the economic recovery, of course, could start rates back up. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

After FOMC meeting on: Consensus

Dec 14 0%–0.25%

Jan 26 0%–0.25%

Mar 15 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus

Dec 14 <1%

Jan 26 <1%

Mar 15 <1%

Mortgage Rates and bonds.

2010-12-02T14:22:00.001-08:00

"Mortgage Bonds opened sharply lower, but have recovered from their worst levels. Yesterday, a wild sell-off in Bonds was sparked by good economic news from China, speculation that the European Central Bank would consider more Quantitative Easing of their own to aid their troubled member countries and better than expected ADP numbers.

This morning, Initial Jobless Claims were reported higher than expected but the closely watched 4-week moving average moved to a low not seen since August of 2008. This is an encouraging sign and tells us that the labor market is getting better.

I feel that tomorrow's government jobs report will come in at or better than expectations, so at this time I am recommending a Locking bias."

Rising Tide!

2010-11-17T06:26:00.000-08:00

Interest Rates rise over .25% in less than one week. Hello QE2! Mortgage rates are still at historical lows but with the Fed pouring money into Mortgage Backed Securites and inflation looming, Rates will move higher. Homeloanapproval.com

Todays Market Update

2010-10-22T07:34:00.000-07:00

Mortgage Bonds are starting the day slightly lower, but much improved from their worst levels seen earlier today. Yesterday’s “Closing Technical Signal”, which we highlight each day in the Market News feature, did show a weak or negative candle…and so far this morning, prices are following through to the downside. A look at the Bond Page shows how this morning, Bond prices dropped down and hit exactly on support at the 25-day Moving Average, then rebounded higher from the lows.

There are no economic reports due for release today - but the Fed speak continues, as Philadelphia Fed President Charles "Three Swing Charlie" Plosser will be talking at 1pm ET today, and could be yet another Fed Member helping to spread the love regarding the next round of Quantitative Easing (QE2) – and perhaps he’ll even drop some clues on how much and what the Fed will be buying, as they are expected to make a formal announcement about QE2 on Nov 3rd.

Just yesterday, St. Louis Fed President James "Raging" Bullard said that the Fed may want to purchase Treasury Securities in $100B monthly increments to improve conditions...this is the third source saying the Fed will purchase $100B a month in just the past 48 hours. It sure looks to us like the Fed is trying to show their hand, and get the market somewhat prepared and positioned ahead of the formal Fed announcement, so as not to rattle the markets into more volatility with any surprises.

But the Fed members aren’t presenting a totally united front just yet – vocal Kansas City Fed President Thomas "BBQ" Hoenig is still warning that excessive liquidity, or pumping of more money into the system, could lead to some very bad unintended consequences. And we happen to agree – this is a bit of a dangerous game, and the amount of debt being pumped into the system is historically unprecedented.

And speaking of pumping more money into the system...yesterday, the Treasury announced that it will be selling a fat $109B in additional government debt next week, and although not a record, the announcement of this additional supply is also weighing on the market.

This weekend there is an important G20 Meeting, which brings government financial leaders of the 20 largest economies together to discuss key issues. And one of the key issues we are seeing is the actions being taken by many countries to devalue their own currencies, in order to help boost their exports…and thereby improve their economies. We would not want to see a currency devaluation war as it could spur massive global inflation down the road.

And in an effort to set a calming tone heading into these meetings, Treasury Secretary Tim Geithner said yesterday that the major currencies around the globe are "roughly in alignment" now…meaning that there is no need for countries to try and manipulate or devalue their currency. But as countries may all shake hands at the meeting and take a “Boy Scout” style pledge of honor not to do such a thing…their primary concern is their own countries economic strength, so they may be keeping their fingers crossed behind their backs as they all agree not to manipulate currency.

This morning, Bonds have successfully tested the floor of support at the 25-day Moving Average a couple of times. The last time we tested this floor, Bond prices improved over the next few days.
By MMG Barry Habib

Buyers and the News!

2010-09-13T12:13:00.001-07:00

Last week included a few interesting takes on where things are at in the housing market. We first got the news that purchase mortgage applications last week were at their highest level since May, UP 6.3% over the week before. It's nice to see buying interest starting to rebound after the tax credit expiration. But we do have a bit of a way to go, as last week's number was still 38.8% below where it was a year ago, according to the Mortgage Bankers Association.

One source of new buyers for sure is the huge number of people for whom homes are now way more affordable. For families making the national median income, the share of homes they can afford stayed above 70% for the sixth quarter in a row as tracked by the Housing Opportunity Index (HOI). The National Association of Home Builders, which co-sponsors the HOI, said this affordability was the result of low home prices and favorable mortgage rates. The NAHB chairman commented, "Homeownership is within reach of more households than it has been for almost a generation...with house prices starting to stabilize, conditions are beginning to draw homebuyers back into the market..."

>> Review of Last Week

SQUEAKING UP... We had just four days of trading last week for investors to show us how they feel about the economic prospects going forward. Coming back from Labor Day, stocks sank on Tuesday, with the Dow 147 points down. But during the next three days, traders slowly pushed prices back up enough that all three major stock indexes squeaked into positive territory for the second week in a row. And the Dow remains UP for the year.

Old vs New GFE

2010-09-05T07:48:00.000-07:00

I couldn't talk long enough about the constant roll out of new guidelines affecting home loans on a daily basis. Its certainly an interesting way to start a week knowing what you know today may be little use to anyone tomorrow! The good new is that everyone is becoming more comfortable with the technicals that have become the new standards resulting from the financial reform act. Some of the better points here are old vs new. Here is one of my favorites.

Old Good Faith Estimate vs. The New Good Faith Estimate

The Old was a general list of fees that varied in style, size, shape, definition of terms, costs etc. A constantly moving target that had no responsibility other than to give you an idea of what the loan terms and costs possibly could be. The lender was under no obligation to disclose any change in terms, costs, points or fees and buyers were often shocked at closing with little or no options but to close and bear it.

Move over Old and in with the New. The new is actually a very clear and standard form which gives the the precise costs in one lump sum, broken down between lender charges and title/escrow charges. It must be exact and can not change in any way once disclosed or unless there is a changed circumstance affecting either the costs or the rate. These changes are very specific and the home buyer must be informed a minimum of three working days prior to closing of the loan. The catch here is that lenders can opt to disclose fees from a title/escrow company that the buyer would never use. Since the new laws require most title fees to be shown as the buyers responsibility even if the seller is paying them, the title services can be chosen by the buyer. Choosing to close some place other than the one listed on the Service Providers list on the Good Faith Estimate does not hold the lender responsible to the fees of the selected company. If choosing the title company listed on the GFE then each fee calculated in the title services total must be within a tolerance of 10%. Hallelujah! I'm a huge fan of the new process and how the consumer is given the access to his loan costs upfront. Additionally, the GFE explains important details, like Pre-Payment Penalties, escrow account, interest rate, fixed or ARM, if payment can change etc.

The best part of all this is that you can ask lender A for a quote and see that his fees are x all in, you are now able to compare x to lender B's x and C's and...Well you get the picture. Comparing title/escrow fees is not really what this is all about. Often times you must close where the contract in a home purchase situation requires you too. Title fees vary slightly between each provider and their total fees, as is the lenders are now wrapped into one big number. Yes!

The only thing the New GFE does not show is your payment. Really? Who wasn't thinking? OK, Ill go for it and ask my Loan Officer to calculate it for me or even better go to homeloanapproval.com and use the payment calculator. Its fun!
Home buying, It's not what it used to be but just a whole lot clearer!

homeloanapproval.com

Todays Markets

2010-08-26T12:18:00.001-07:00

Initial Jobless Claims unexpectedly dropped by 31,000, the first decline in a month, to 473,000. The number of continuing claims dropped by 62,000 to 4.46 million, while those getting extended benefits climbed.

Treasuries Erase Advance as Initial Jobless Claims Drop More Than Forecast. Bond prices are little changed today after yesterday's bond market rally faded as the stock market rallied and in front of the$36 billion sale in five-year notes which were auctioned off at a record low yield of 1.374%, smashing the previous low of 1.54. Tomorrow, GDP revisions for 2Q10 could be key for the markets as the initial report of 2.4% growth in 2Q10 could be revised sharply lower.

MBA: Foreclosures Fall but New Delinquencies Rise. Mortgage delinquency rates declined in the second quarter to 9.85%, from 10.06% in the first quarter. The pace of foreclosures declined as servicers continue to work on mortgage modifications. More than 4 million mortgages are more than 90 days delinquent or in the foreclosure process and many of these homes will be foreclosed on later this year, putting downward pressure on home prices. The percentage of loans in the foreclosure process declined last quarter to 4.5% from 4.63% in the first quarter. The pipeline of delinquencies and huge rise in bank owned properties last quarter has aggravated concerns that the critically important housing sector will drag the U.S. economy back into recession.

Plunge in Home Sales Stokes Economy Fears, and the decline in mortgage rates in recent months appears to be doing little to stimulate demand. Analysts say the big risk to real estate values is that consumers lose any urgency to buy homes because of new concerns that prices will continue to fall.

Is America the next Japan? What are the chances the U.S. will face "Japanification" of the economy with deflation, a bear market for stocks and housing, and relentless recessionary pressure much like Japan's 20 year battle. This would be dismal: Interest rates would remain near 0% through 2020; the economy would grow at an average annual rate of just 1% over the next 20 years; the Dow would drop below 4,000; and home prices would fall an additional 46% by 2030.

Economic Indicator News Release Calendar for the weeks ahead

Thursday, August 26

United States

Date Value Consensus Forecast Previous

8:30 AM Jobless Claims 8/21/2010 n/a n/a 464,000

11:00 AM Kansas City Fed Manufacturing Survey August n/a n/a 3

Friday, August 27

United States

Date Value Consensus Forecast Previous

8:30 AM GDP 2010Q2 2.5% 2.0% 2.7%

10:00 AM University of Michigan Consumer Sentiment Survey August n/a n/a 66.5

10:30 AM ECRI Weekly Leading Index 8/20/2010 n/a n/a 120.7

Monday, August 30

United States

Date Value Consensus Forecast Previous

8:30 AM Personal Income July n/a n/a 0.4%

9:00 AM S&P/Case-Shiller® Home Price Indexes June n/a n/a 4.6

10:30 AM Texas Manufacturing Outlook Survey August n/a n/a -21.0

Tuesday, August 31

United States

Date Value Consensus Forecast Previous

7:45 AM Chain Store Sales Snapshot 8/28/2010 n/a n/a 0.6%

8:30 AM ISM - NY Report August n/a n/a 458.9 index

9:45 AM ISM-Chicago August n/a n/a 59.1

10:00 AM The Conference Board Consumer Confidence August n/a n/a 50.4

2:00 PM FOMC Minutes August n/a n/a N/A

5:00 PM ABC News/Washington Post Consumer Comfort Index 8/29/2010 n/a n/a -48

Consensus Estimate Source: Thomson Reuters

Refinancing

2010-08-05T05:59:00.000-07:00

Tis the season. Refinacing is in full swing once again. With the current rate climate elevating the rush to save thousands of dollars in monthly mortgage payments, anyone with a rate above 5% should consider the option. When contacting your lender be prepared to offer up a bit information. Items necessary will include:

Your current loan(s) balance
Your annual costs for Taxes and Insurance
The last date your property was financed
The type of loan you have, FHA, VA, Conventional, Home Equity, etc
Do you escrow for taxes and Insurance
Your estimated property value in the current market
Will you pay your closing costs out of pocket or prefer to roll them into the loan
What term are you considering, 30,25,20,15,10?
What is your goal? Lower Payments or faster payoff or a combination of both?

Be prepared and be proactive. The results will be worth it.

Alan

What a Market!

2010-07-21T09:45:00.000-07:00

Stock earnings reported last night and so far this morning were mostly positive, but it failed to give the overall Stock Market a big boost.

President Obama is scheduled to sign the Financial Regulation Bill into law at 11:30am ET this morning. As we have been discussing with you, the impact of the 2300 pages of legislation are very far-reaching, and could be devastating. Many are already incurring significant expenses to pay teams of attorney’s huge sums of money, just to try and understand what the impact on their business and sector will be. No doubt that the signing of this Financial Regulation will come with much fanfare and applause – but most business leaders and economists, including Alan Greenspan himself, are very concerned.

That said – the pending legislation is already driving unintended consequences. And this morning, Bond rating agencies Moody’s, Fitch, and Standard and Poor’s all announced they would not allow their Bond ratings to be used in new Bond offerings out of concern for potential legal liability resulting from Financial Reform. The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately – and the agencies are saying that until they have a better understanding of what their exposure may be, they will refuse to let Bond insurers use their ratings. It remains to be seen how this will impact Bond pricing and salability.

At 2pm ET this afternoon, Federal Reserve Chairman Ben Bernanke will begin his testimony on monetary policy in front of the Senate Banking Committee. This testimony has been pushed back from its normal 10am start because President Obama wants center stage for his signing of the Financial Reform Law. We expect Mr. Bernanke to say that the economy has indeed slowed but will not slip into another recession. And if Mr. Bernanke does not comment on what additional measures the Fed might take to prevent a double dip, it is likely to come up during the Q & A session with members of the Senate. One question that will likely come up is whether the Fed will continue to pay interest on excess reserves. By eliminating interest paid on these reserves, it is thought that the funds may find their way back into the economy.

Another question that may come up for Bernanke, is whether the Fed would consider more quantitative easing. The Fed already purchased $1.25T of Mortgage Bonds, as well as several hundred Billion in Treasuries. These purchases have helped drive rates down towards historic low levels - and yet, the housing market is not responding. This begs the question, would more of the same tactic cause a different result? The Fed's balance sheet is already bloated. And we feel that the Fed, like most in Washington, is missing the target. The problem, as we see it, is not that rates need to be lower. Many individuals would either purchase or refinance but are unable to do so because of tighter underwriting guidelines, as well as low valuations. One example - no income verification loans, which have been called "liar loans", have been placed in a negative spotlight and virtually eliminated. But there has been a good track record for those loans in the past when underwritten with LTVs at 75 or less and excellent credit scores. If the government were to direct some resources towards reestablishing some of these more reasonable lending tools, the results might be better.

And as if that wasn’t enough from DC – the Unemployment Extension Bill cleared a procedural hurdle in Washington yesterday, and will go to a final vote in the Senate today. It must still clear the House of Representatives as well – but is expected to do so. This legislation will provide extended benefits for up to 2.5M people whose benefits expired before the 99 week cut off.

And here's an important developing story. China's reserves, which are held mostly in US Treasuries, as well as Mortgage Backed Securities, stand at $2.5T. But last quarter marked the first time in a long time that these holdings did not increase. Does this mean that China is slowing its US debt purchases? We will have to keep tabs on this because a slowdown in US debt purchases from China could adversely affect the Bond Market, as their purchases have contributed to the low interest rate environment in the US.

Markets Update

2010-07-19T05:56:00.001-07:00

Market Update

INFO THAT HITS US WHERE WE LIVE Some analysts feel the homebuyer tax credits artificially boosted the housing market by pushing forward home sales that would have happened later. Others feel most buyers would have bought anyway. In any case, there's now concern about a coming drop in sales. Well, June sales figures should still benefit from activity spurred on by the tax credits. And tax credit sales should even help monthly reports through September, now that buyers in contract on April 30 have been given until September 30 to close.

Nonetheless, we ought to keep an eye on monthly Pending Home Sales, which track signed contracts that turn into sales a few months out. Even though we may have a sales dip after the tax credit, the fact remains that near historic low mortgage interest rates are getting people back into the market. These rates, combined with today's prices, have made homes more affordable than they've been in years, letting many buyers move up to better neighborhoods with more choices.

But buyers shouldn't wait. The National Association of Realtors chief economist sees the median home price rising nationally 2% to 3% this year. The NAR's CEO feels sales will pick up in the fall and that the down-cycle has run its course. The chief economist at Moody's Economy.com also believes the housing crash is nearly over. And we all know mortgage rates won't stay at their current levels indefinitely. In other words, this could be one of the best times to buy a home in decades.

Home and Wealth

2010-07-15T13:27:00.000-07:00

Update your home insurance and save money too!

Once a year it's a good idea to update your homeowners insurance. You want to make sure you have adequate coverage if you experience a loss. And you want to check on all the options insurance companies offer to reduce annual premiums. Here are the steps to take.

Calculate the coverage you need on the house itself. Homeowners insurance pays what it will cost to rebuild your house. You can arrive at this amount by multiplying your home's square footage by the building cost per square foot for homes in your local area. Get this number from realtors, local homebuilders' associations, and insurance agents. Be sure to check on the building cost number each year, as it can change, leaving you with inadequate coverage.

Make sure your home's contents are adequately covered. Check your policy to see if you have "full replacement value" coverage for your home's contents. If you don't, the insurance company can give you a pro-rated value for these items -- a reduced amount that accounts for age and wear. In any case, valuable items such as jewelry, art, and antiques should be insured for their actual replacement value on a separate rider. You pay more for this coverage, but you will get full value for the item in case of a loss.

Take photos and videos of your home and contents. Cover every nook and cranny and put the pictures and videos in a safe deposit box. You might also save them online. Then if you have a loss, you have proof of the quality and condition of your home and its contents before the disaster.

Ask about premium discounts. There are many ways insurers discount their annual premiums. Higher deductibles or a good credit rating can earn you discounts. Purchasing your auto insurance from the same company may reduce premiums. Discounts can also come from: smoke detectors, sprinkler systems, fire extinguishers, being over 55 or a longtime policy holder, security alarms connected to an outside service, or hurricane shutters. But don't let price be your only concern. First and foremost, make sure you're dealing with one of the reputable, reliable insurers operating in your area.

BREAKING NEWS!

• Mortgage rates hit historic lows. Mortgage rates are back where they were in the 1960s when cars had tailfins. So if you or someone you know may be in a higher interest rate mortgage, call or email us today to see if there's money to be saved!

• Low rates and today's home prices also make homes more affordable than they've been in years. So anyone thinking of buying might want to make a move now.

Inf0 That Hits Us Where We Live

2010-07-05T07:17:00.000-07:00

Last Thursday pending home sales, a measure of contracts signed for existing homes, were reported off 30% in May compared to the prior month. This of course was simply the result of the end of the homebuyer tax credit, which required a signed contract by April 30. Common sense tells us many of those April contracts would have happened in May or even later if it weren't for the pressure to qualify for the tax credit.

More good news on the price front, as the Case-Shiller home price index was UP 0.4% in April, seasonally-adjusted, and up a comfortable 3.8% versus a year ago. Case-Shiller tracks home prices in the 20 largest metro areas. This follows the prior week's FHFA home price index, which was UP 0.8% for April for homes financed with conforming mortgages. Buyers take note.

Friday, the President signed into law a bill that extends the closing deadline for claiming the federal homebuyer tax credit to September 30. The National Association of Realtors estimated that up to 180,000 homebuyers in contract by April 30 could have missed the June 30 closing because of processing delays due to the huge volume of buyers seeking the tax credit.

Condos, The New NO NO!

2010-06-22T06:18:00.000-07:00

Last week we had to make a decision on weather or not to order an appraisal for a Condo being purchased by my borrower. If we ordered the appraisal before we determined project lending requirements, then our client would risk losing 425.00 on an appraisal (FHA). The issue stems from the crack down by both FHA and Fannie Freddie that requires upfront reviews of project documentation provided by the Condo HOA or management company running the project. In the old days, FHA would merely spot approve individual units based on a questionnaire, review of that questionnaire and adequate Blanket Liability insurance. Fannie, Freddie were more lenient. So long as the Insurance, Owner Occupancy and the no one entity owned 10% or more of the units all was right with the world. Fast forward and today the game has changed,dramatically. FHA now requires upfront approval of the entire project which will not happen unless approval is granted after review of all condo documents including Budget, Insurance, Questionnaire, Bi-laws, minutesof the last two meetings, etc. If the budget doesn't include a 10% reserve of the annual budget and is not collected and line items monthly, then its a no go. In our case we were missing the Signature page of the governing documents and since no one had needed to locate that document for over 20 years it was non existent. Btw, the HOA provided a random signature page with a different sequence (page) number than the documents they provided. I become the bad guy very quickly as the Realtors are trying to appease both buyer and seller and I'm protecting my buyer while the process takes 6-8 weeks to sort through. Many requests for documents from the HOA go unanswered for days at a time. The clock is ticking folks and FHA doesn't care. My advice is to avoid any Condo projects that you cant verify approval by either FHA or Fannie Freddie, upfront. Before any offer is made on a specific unit, this needs to be known. Order that appraisal and you've thrown away the cost and created a frustrated client. We did and now we wont!

News-Housing and the Economy

2010-06-21T06:07:00.001-07:00

The big news of the week revealed housing starts down 10.0% in May to an annual rate of 593,000 units. Closer inspection of the report reveals that all the drop came from the South. In fact, housing starts were actually UP in all other regions of the country. The South suffered in May with the Gulf oil spill disaster and major flooding. It's understandable that these unfortunate occurrences would make everyone, including home builders, more risk averse than usual. In any case, starts are UP 24.3% above their low a year ago April, with single-family starts UP 15.3% in the last year.

A little more worrisome was the 5.9% decline in building permits, which was seen nationwide. Of course, any slowdown in building will help speed up the reduction in new homes inventory. Nonetheless, permits are UP 4.4% overall and UP 3.1% for single-family units from a year ago.

For more great information visit: HomeLoanApproval.com

Wednesday, Fannie Mae announced "Special Relief Measures" for borrowers whose properties or income are negatively impacted by the Gulf oil spill. Servicers may suspend or reduce these borrowers' mortgage payments up to 90 days to determine the impact of the disaster on the property or the borrower's financial condition. If you know someone who may qualify for this relief, please forward them this link: http://www.fanniemae.com/newsreleases/2010/5062.jhtml?p=Media&s=News+Releases

Bond Market and Rates

2010-06-16T14:15:00.000-07:00

After yesterday’s slide for Mortgage Bonds, which was driven by the rally in Stocks, we are seeing a bit of a reversal this morning – again driven by the action in Stocks, where a battle between the Bulls and Bears over the important 200-day Moving Average is being waged. Yesterday, both the Dow and the S&P500 indices were able to climb above their respective 200-day Moving Averages. Both Bulls and Bears know what an important line in the sand this level is…and the Bears aren’t relenting just yet. The Bears attempted to push Stocks back beneath the 200-day MA early in today’s trading session. This helped Mortgage Bonds achieve their highs around the same time. But then – the Stock Bulls mustered enough momentum to bring prices back above this important level, reducing both the losses in Stocks and gains in Bonds.

And this is where we are currently trading. We’ll keep an eye on this important battle throughout the day, as it will certainly influence the direction of Mortgage Bonds. A convincing break above the 200-day Moving Average would be troublesome for Bonds, as the next move higher for Stocks could be to test the January highs. This means that Mortgage Bonds could give up .25 - .50% in rate, should this take place. But another failed attempt at the 200-day Moving Average – and there have already been a couple in the past few weeks – should give Bonds a boost and help them move towards last week’s highs.

Also helping Bond prices this morning are investors growing concerned with Spain. There is speculation that a bailout is being prepared for the country, even though the European Central Bank insists that a scheduled meeting this Friday with the International Monetary Fund and Spain has nothing to do with a bailout package. However, the markets may not be buying the ECB's denial, as Spanish Bond prices fell sharply today. This news has sparked some safe haven buying in the US Bond market. News from Europe will continue to cause more volatility in the marketplace. It’s difficult to get Europeans to adopt meaningful austerity measures. Just today, France announced their big move towards austerity – an increase of retirement age from 60 to 62, by 2018. If you are laughing, we don’t blame you…but the situation is far from humorous.

Back at home, we had some economic releases, starting with the Producer Price Index (PPI). The headline number dropped 0.3%, when economists were looking for a 0.5% drop. Be mindful that energy prices have moved higher in recent weeks, so we may see a pickup in headline PPI next month. When stripping out volatile food and energy costs, the Core rate rose to 0.2%, above the 0.1% expected. On an annual basis, headline PPI rose 5.3% and in line with estimates. And the year-over-year core reading was 1.3%, slightly above forecasts but still near the lower range of the Fed's comfort zone. Tomorrow brings the more closely watched Consumer Price Index (CPI).

Housing Starts in May were 593,000, well below the 655,000 expected. That number is down 10% from the prior month's reading, but still up 7.8% year over year. Building Permits were 574,000, well below the 631,000 that were expected. Another interesting way to view these numbers is to take housing starts as a double edged sword. While more housing starts would show expected optimism from builders, fewer starts and permits are not necessarily all bad news. Adding less supply and inventory may be healthier in the long run, and aid in moving some of the existing homes in the marketplace.

Industrial Production and Capacity Utilization were both reported higher than expectations, suggesting a pickup in manufacturing and output. The positive readings did help Stocks recover from their worst levels, and this is a good leading indicator that could bode well for the future.

Next Wednesday the Fed will release their interest rate decision and Policy Statement. There is speculation that the Fed may lower their 2010 and 2011 growth targets for GDP. It was just two months ago – in April – that the Fed raised their 2010 GDP projections to a range of 3.2 - 3.7%. A possible cause for the Fed to lower their target would be the significant slowdown in Europe and weakness in the Euro. This has caused the Dollar to gain strength, making our exports a bit more costly. And lowering the target – along with the most recent disappointing Jobs Report – may give the Fed enough consensus, amidst grumblings from its more hawkish members, to maintain their "extended period" language. In any case, it is all making for a very interesting and important Fed Meeting next week, as it could have an important bearing on the carry trade and the direction of mortgage rates.

Friday Closings

2010-06-11T08:23:00.000-07:00

Need I say more? My advice would be to close any day but Friday. Consider this. There are many steps prior to you getting the keys that must take place before you go to closing. So, if your planning on having all weekend to have and to hold your new dream home then close Wednesday or Tuesday or any other weekday, just not Friday! Check out the list list of what will happen before your loan closes and funds. It's a mile from there until you get the keys.

Loan is Fully Approved

Closing documents sent to the Title company

Settlement statement is generated

Cross checking of same between Lender and Title Company
until fully approved. Multiple corrections will be made

Instructions for loan closing revised

Buyer and seller both sign

Documents faxed to review by lender

Final Documents or missing signatures requested

Loan Funds

You get the Keys, Assuming no bumps!

Close on any other day or you may lose the weekend.

You'll be glad you did!

Locking in an Interest Rate

2010-06-10T08:53:00.000-07:00

I'm asked this question so often I felt it needed some attention. What is locking in and when can I do it?

Lets start with Rate Lock time period.

Rate locks are based on the amount of time needed once you lock a rate until the amount of days needed for the loan to close and fund. So if your lock is good for 30 days then your loan must close and fund within that 30 day time period. If it does not, the lender can charge you a per day extension or take you to current market which could change your rate for the worse. Lets say you locked a rate and your rate was low and you miss your closing date and rates are now higher. In this case it would make sense to extend the lock and pay a per day charge to do so. Your lender will be able to tell you what that is. Lets say your closing is 45 days and you are worried that interest rates may rise.

You ask "Can I go ahead and lock my rate now and if rates move lower can I take that rate"? Some lenders offer a one time free float down so long as your within 20 days or less of the closing date. Normally some form of commitment is required to participate and is refunded at closing.
What is the difference if you lock 45 days vs. 30 days vs. 10 days? The answer is, the longer your lock, the higher the price for the rate.
Generally and I do mean generally, 15 days on a lock will cost about .25 percent of your loan amount.

If your interest rate was Zero Points at 4.75% on a 30 day lock, then a 45 day lock would have cost you .25% more. On a 100,000 loan that would mean 250.00 for the extra 15 days or .25% of the loan amount. For rate quotes visit me at homeloanapproval.com

Alan

Leave Emotion Out of It.

2010-06-09T07:39:00.000-07:00

Although I'm not sure this is even possible, consider your home loan to be like any other business transaction. Its just happens to be the largest financial decision you'll ever make! Remember, If you have a trusted advisor that keeps your best interest at heart, then you can feel good about your mortgage process and make the most of what normally drives some folks over the edge. Do you really want to look back and say, "Wow, that was the worst experience of my life?" Probably not. The key is to be proactive 100% of the time. If you think about something pertaining to your loan, call! If your not sure what is going on, call! If your Realtor tells you something that could impact your loan, closing costs, sales price, closing date, call! Call and then call again! Seriously, the communication effort you make will pay off in the end.

Alan Felch
HomeLoanApproval.com

Take your Realtors Advice!

2010-06-08T14:42:00.000-07:00

If your looking for the fastest way to home loan approval, then you should rely on your realtors referral partners for a proven track record. A warm referral buy your experienced Realtor to a Loan Officer they have had experience with is almost always the best way to get to closing with the least amount of delays.

Getting Approved

2010-06-03T06:44:00.000-07:00

So your loan Officer gives you the "List". These are the items you need to provide that will document your income, assets and any other information critical to the approval process. Think detail here. If your bank statements show you are overdrawn periodically an UW is not going to like that and will ask why. You better have a great excuse because this is seen as your ability to manage money. Never deposit large sums of money without clearing it with your loan officer first. Credit card advances, money from a friend are not good! Don't do it. Always talk to your loan rep about any movement of cash. Even its from one of your own accounts to another. You must document, document, document. One missed transaction by you can stop the closing. Closing ugly is not an option!

More to come!

Alan

Closing Ugly! Most Common Mistakes to Avoid...

2010-06-02T11:54:00.000-07:00

You ready? Here it is! The most common reason for not getting a loan approved is not being prepared with the minimum paperwork requirements. That's it. Nothing else comes close to being a game changer as the documentation you are providing your lender. Seriously, do you think a loan officer really wants to give you bad news two days before closing? An underwriter doesn't care. If its not documented it wont get approved. My next blog will address the most common documentation problems

Stand by.....

Alan