Archive for November, 2007

Comments Off on The Cost Of Living Includes The Cost Of Gas And Food (And May Get More Expensive Through The Winter)

The Cost Of Living Includes The Cost Of Gas And Food (And May Get More Expensive Through The Winter)


October’s Consumer Price Index was released Thursday and showed a 3.5 percent increase in the cost of living since October 2006.

The report also showed a core inflation rate of 2.2 percent. The “core CPI” is a smaller part of the overall CPI.

The math is the same, but it specifically excludes cost changes in energy products and food products because these two elements can be highly volatile.

When tracking inflation, therefore, economists tend to focus on core CPI instead of “regular” CPI.

Both are important — Core for long-terms trends, and total for short-term consumer sentiment.

Inflation makes life more expensive and with more money spent to live, there’s less money for savings and/or discretionary spending, and that slows down the economy.

USA Today ran a terrific quote from a accountant in San Diego on this topic:

“Have I been hit by rising energy prices? Hello! I live in the San Diego area, and I’m paying $3.41 a gallon,” says Tage Woehl, an accountant. “On a 15-gallon tank, I’m spending over $50 per week. I find coupons when I can to eat, and seriously look at sales, because I’m spending a chunk more dough for gas than before.”

And so, as we forge approach Black Friday, the rate of inflation becomes very important to the U.S. economy. If consumers are feeling pinched, it’s expected that they’ll spend less, thereby slowing down the economy faster than was expected.

For home buyers and home sellers alike, this is bad news.

For buyers, mortgage rates may increase because the dollar should weaken; and, for sellers, homes may sit on the market longer because fewer buyers will qualify for mortgage loans at higher rates.

TIPS, I-Bonds can help defang the inflation dragon
John Wagonner
USA Today, November 16, 2007

Comments Off on Homeowners Should Have Basic Wills

Homeowners Should Have Basic Wills


If you own a home, you should have a will

Statistic #1: According to the Census Bureau, 69% of Americans are homeowners.

Statistic #2: According to, 42% of Americans have a basic will.

Basic Math: 27% of American homeowners are in need of a basic will.

Addressing mortality can be difficult for some people, but even more difficult is addressing a home that’s been put in probate after a homeowner’s death.

If you own a home — whether you have a spouse, children, both, or neither — it makes sense to speak with an estate planning attorney to understand your options.

Death is inevitable, so preparing for it is prudent.

Comments Off on Where You Find Speculators, You May Also Find Failures

Where You Find Speculators, You May Also Find Failures

Foreclosures can be the result of a bad economy or a bad investment

This morning, RealtyTrac released its Q3 2007 foreclosure data for the United States.

The leading cities for foreclosures are:

  1. Stockton, CA (1 per 31 households)
  2. Detroit, MI (1 per 33 households)
  3. Riverside/San Bernardino, CA (1 per 43 households)
  4. Fort Lauderdale, FL (1 per 48 households)
  5. Las Vegas, NV (1 per 48 households)
  6. Sacramento, CA (1 per 48 households)
  7. Cleveland, OH (1 per 57 households)
  8. Miami, FL (1 per 60 households)
  9. Bakersfield, CA (1 per 64 households)
  10. Oakland, CA (1 per 71 households)

Looking more closely, we can see pattern.

California, Nevada, and Florida are well represented and that makes sense. Between 2002 and 2006, these areas were popular with speculators, many of whom used 2- and 3-year adjustable rate mortgages that did not require income verification, nor did they require downpayments in excess of 5 percent.

These loans are now adjusting and in 2007, mortgages for investors are more stringent. They typically require a 10-20% equity position and verifiable income.

With no mortgage options, no buyer bailouts, and no means to pay the bills, many speculators are choosing to walk away from their investments. Hence, the high foreclosure rates in California, Nevada, and Florida.

Rounding out the top 10 are Detroit and Cleveland.

Foreclosures in these cities make sense, too. Both have been decimated by job losses in the auto and manufacturing industries and without jobs, homeowners can’t pay the bills.

In other words, foreclosures are often not the result of a “bad mortgage”, but instead a “bad investment” or a “bad economy”.

The entire list of foreclosures by MSA are available on RealtyTrac’s Web site.

Comments Off on The Week In Review (November 13, 2007) : What To Watch For

The Week In Review (November 13, 2007) : What To Watch For


The Dow Jones Industrial Average and NASDAQ shed 4.1% and 6.5%, respectively, last week.

Normally, this would be good news for mortgage rates because investors tend to look for “safe havens” in bond issues, but instead, just treasuries benefited last week. Mortgage bonds were left in the dust.

Mortgage rates finished to the upside after a week without hard data and one in which psychology and momentum ruled.

This week figures to be different.

Since the Fed’s decision to lower the Fed Funds Rate two weeks ago, there hasn’t been much hard data for market players to digest. This week, we’ll get an overdue look at how American consumers are dealing with inflationary pressures with the releases of October’s Retail Sales and CPI data.

Retail Sales hits the wires Wednesday morning and consumer spending represents two-thirds of the U.S. economy. Therefore, this very important data point will be closely watched because it could be foreshadowing how Americans will spend through the all-important Holiday Season.

If Retail Sales surprises to the strong side, mortgage rates may increase on worries over inflation. If Retail Sales surprises to the weak side, mortgage rates may increase on worries over recession. Either way, there’s no real room for error if you are floating your mortgage rate right now so locking prior to Wednesday may be prudent.

Then, on Thursday, the Consumer Price Index figures from October will hit the wires.

CPI is a popular measure of inflation and is expected to show that the average “cost of living” increased by 0.3% in October overall, and 0.2% if we exclude the highly volatile prices of food and energy.

Because inflation is the enemy of mortgage bonds, stronger-than-expected CPI data would be expected to push mortgage rates higher.

Comments Off on The Simple Math Of How Mortgage Rates Are Born

The Simple Math Of How Mortgage Rates Are Born

Simple math helps to explain the relationship between mortgage bonds and mortgage rates

We talk a lot about how mortgage bonds are the driving force behind mortgage rates but we never get into the math of it. So, to help our understanding of the subject, let’s delve a little deeper.

Here’s the (very simplified) math behind it:

If you pay $100 today for a $6 annual interest payment over 30 years and then you get your $100 back, you would have earned 6.000% on your money.

But, if you paid $98 today for that same $6 annual interest payment, your rate would have be 6.122%.

If you paid $102 today for that same $6 annual interest payment, your rate would have be 5.882%.

Because the interest rate of a particular bond never changes, we can see how lower price leads to a higher yield, or rate, and vice versa.

This basic math is why mortgage bond prices and mortgage rates move in opposite directions.

Now, the price of mortgage bonds is determined by the demand for them. When demand for mortgage bonds increases, the price for mortgage bonds increases. By contrast, when the demand for mortgage bonds falls, the price for mortgage bonds falls, too.

And, as we can see in the examples above, as bond prices rise and fall, the relative yields (i.e. rates) of those bonds move in the opposite direction. Lower prices translate into higher rates, and higher prices drive rates down.

For more on how mortgage bonds prices work, check with Google.

Comments Off on Mortgage Rates Fall For ARMs Faster Than For Fixed Rate Mortgages

Mortgage Rates Fall For ARMs Faster Than For Fixed Rate Mortgages


After running neck-and-neck for several months, interest rates for fixed-rate mortgages and adjustable-rate mortgages are finally diverging.

Despite pricing worse than its fixed-rate counterpart throughout much of August and September, ARMs are now close to 0.375 percent lower for conforming products sold through Fannie Mae and Freddie Mac.

This equates to roughly $25 per month per $100,000 borrowed.

If you know that you don’t need a 30-year rate commitment from your lender, you may find that a well-structured ARM is a real money-saver.

Comments Off on It’s Not Your Imagination : Getting A Home Loan Is More Challenging For Everyone

It’s Not Your Imagination : Getting A Home Loan Is More Challenging For Everyone


Mortgage approvals are more challenging than any time since 1990

If it feels like mortgage approvals are harder to come by than in years past, that’s because it is.

And we’re not just talking about sub-prime mortgages (for which the market has nearly vanished in just 12 months).

According to a story on Marketwatch, mortgage guidelines are more challenging for everyone to meet — gold-star credit borrowers included.

The Federal Reserve conducts a quarterly survey of senior bank lending officials and in its most recent survey, nearly half of the banks said that their respective underwriting process have tightened, forcing borrowers to “jump over a higher bar” in order to get approved.

As a home buyer and/or homeowner, you can’t do much about the banks, or the mortgage markets. But, you can make strides to improve your personal application stronger and increase the likelihood of an approval.

That process starts with your credit score.

If you’re planning to make a move within the next 12 months, know that it’s never too soon to get a credit consultation from a trusted mortgage loan officer or other financial professional. Yes, banks are now demanding more strength in income and in assets before approving loans, but without sound credit history, those other two factors may not matter at all.

The mortgage approval process will likely get more difficult before it begins to get easier. Therefore, take proper steps to review and repair your credit (if necessary) well in advance of needing a home loan. Time heals credit blemishes and you may find that it’s the difference maker in getting a lender’s mortgage approval.

Unprecendented tightening in lending standards
Rex Nutting
November 5, 2007. 3:06 P.M. ET

Comments Off on Why Driving Extra Miles For Cheaper Gas May Be A Waste Of Money

Why Driving Extra Miles For Cheaper Gas May Be A Waste Of Money


Driving extra miles for cheaper gas is not always cheaper

With gas prices up 37% nationally since this time last year, Americans have grown accustomed to driving a little bit further just to find a “gas bargain”.

But, is it worth it?

Based on today’s national average gas price of $3.00 and assuming a 15-gallon fill-up and a 20 miles-per-gallon vehicle, a car owner would need to see 1 cent savings per gallon at the pump for each extra mile driven in search of better gas prices.

Broken down:

If gas costs $3.00 per gallon and the car gets 20 miles per gallon, it costs 15 cents/mile to drive the car.

If the car fills up with 15 gallons, a one-penny savings per gallon would yield 15 cents in savings.

15 cents is the same amount of money it cost to drive the extra mile to the “cheaper” gas.

This isn’t an absolute, of course. The one-penny-per-mile rule varies according to several factors:

  1. The gas mileage of your vehicle: The worse your car’s gas efficiency, the fewer miles you should drive to find less expensive gas.
  2. The savings at the pump: The greater the savings at the pump, the more miles you should drive to fill-up at that gas station
  3. How much fuel you plan to buy: The larger your car’s gas tank, the farther you should drive for savings.

The best way to save money on gasoline is to curb automobile usage and follow good driving practices. Then, trying using to find inexpensive fueling options in your area, listed by zip code.

Comments Off on The Week In Review (November 05, 2007) : What To Watch For

The Week In Review (November 05, 2007) : What To Watch For


As we saw last week, the economy is simultaneously hot and cold. This makes for a strange ride on Wall Street because stocks and bonds tend to move on emotion rather than on fact.

This “mob mentality” is one reason why mortgage rates have bounced up and down so much lately.

For example, we saw the following signals of economic weakness last week:

  • The federal reserve cut the Fed Funds Rate by 0.250%
  • Consumer Confidence surveys revealed a two-year low heading into the holidays
  • Financial stocks showed dramatic weakness

But, countering that weakness, we saw these strengths:

  • 166,000 jobs were added to the economy in October, nearly doubling expectations
  • Third-quarter GDP rose 3.9%, higher than was expected
  • Inflation (as measured by PCE) was held in-check at 1.8% annually

This week, with few economic releases that truly matter to traders, expect that markets will likely trade on questions like:

  1. Will the weakening dollar eventually punish the U.S. economy?
  2. Is the rising price of oil going to hurt holiday season sales?
  3. Is the credit crisis over, or just on a pause?

If traders feel confident in their “answers” to these questions, momentum will quickly build in the mortgage bond market, pushing mortgage rates in one direction or the other.

While mortgage rates are expected to remain somewhat flat this week, an unforeseen event or development could shake that balance loose. Any reaction to new news could be swift so don’t wait to lock your mortgage rate — the best rates of the week may be today.

Comments Off on It’s A Terrific Time To Revisit Your Mortgage Rate

It’s A Terrific Time To Revisit Your Mortgage Rate


If you bought your home in 2007 and your mortgage is a conforming home loan, you may be able to take advantage of the current mortgage market conditions and lower your mortgage rate.

As of this morning, mortgage rates are near their lowest levels of the year.

Of course, not every conforming borrower is eligible.

For example, if you bought your home without a downpayment, or if your home has decreased in value since your purchase date, you may not be eligible. Most other homeowners are.

Mortgage rates change every day — just like stock prices — and when the economy shows growth, mortgage rates tend to worsen. Wednesday, the Fed remarked that the economy is nearly in balance and is not declining as much as had been expected. That means that the current level of low rates may not last much longer.

If you’re wondering when a good time to remortgage would be, now would be it. We just can’t predict if the savings will be there much longer.