Archive for March, 2008

Comments Off on Looking Back And Looking Ahead : March 31, 2008

Looking Back And Looking Ahead : March 31, 2008


Mortgage rates were up last week on weak housing data and a growing nervousness about mortgage bond quality.

Rates would have been up more if not for a tame inflation reading Friday.

The Personal Consumption Expenditures report fell Friday to 2.0% year-over-year, putting it back within the Federal Reserve’s comfort zone of 1-2 percent.

PCE is the Fed’s preferred inflation gauge and with inflation in check, Ben Bernanke & Co. can focus on other elements of the economy such as housing and employment.

Mortgage rates figure to be volatile (again) this week.

The first major event to strike markets is today’s release of a 200-page, government-written plan outlining sweeping reforms for the financial industry.

If markets interpret the government’s plan to be bad for bond markets, expect mortgage rates to rise as demand for bonds falls. Conversely, if the reforms are expected to benefit bonds, mortgage rates should fall.

Then, Wednesday, Fed Chairman Ben Bernanke testifies to Congress about the U.S. economy.

Expect the Fed Chief to stay on message, but mortgage rates will respond to his word choice and tone — especially in remarks about large banks and their ability to survive the current market. Traders are already on edge and will take Bernanke’s testimony very seriously.

And lastly, also moving markets this week is the March jobs report, due Friday.

Remember that job growth was negative in January and February so with a third negative month in March, the calls of recession will grow louder; the expectation is the economy shed 40,000 jobs last month. Whether a negative number will be good or bad for mortgage rates, though, will depend on the bond traders’ mood come Friday morning.

Either way, though, if the actual jobs number deviates from the expected jobs number of 40,000, mortgage rates will swing wildly starting at market open Friday and continuing into the weekend.

Comments Off on In 2008, Home Loans Are One Day Cheap And The Next Day Expensive

In 2008, Home Loans Are One Day Cheap And The Next Day Expensive


When mortgage rates change rapidly, it’s a fiscal challenge to shop for a home and/or home loan.

Lately, mortgage rates have been especially volatile, mirroring the wild moves of the stock market.

Here’s how up-and-down stock markets have been in 2008: Through last week, the S&P 500 Index changed more than 1 percent per day on 28 separate days.

This represents 52 percent of all trading days and is the most volatile measurement since 1938.

Mortgage financing is impacted by stock market changes because when money flows into stocks, it tends to come from bond markets. And, when money leaves stocks, it tends to “gets parked” in bond markets.

Because mortgage bonds set mortgage rates, you can understand how stock market volatility can make it difficult to predict what home loan payments might look like.

Volatility is expected to continue for the next several quarters so if you see a mortgage rate you like today, consider locking it right away — it probably won’t last long.

U.S. Stock Volatility Climbs to Highest in 70 Years, S&P Says
Jeff Kearns
Bloomberg, March 20, 2008

Comments Off on Why “Median Sales Price” Reports Aren’t Helpful For Housing Markets

Why “Median Sales Price” Reports Aren’t Helpful For Housing Markets


Each month, the Commerce Department and the National Association of REALTORS release national housing data.

The former’s release is called the New Residential Sales report and the latter’s is called the Existing Home Sales report.

Both reports highlight the “median sales price”, the point at which half of the homes in the U.S. sold for more, and half sold for less.

Last month, the median sales prices were as follows:

The very definition of “median”, however, makes this data point useless for national housing statistics.

If a large amount of homes are sold in regions where home prices are traditionally high, the median sales price will trend higher.

If a large amount of homes are sold in regions where home prices are traditionally low, the median sales price will trend lower.

Again, all that the median sales price tells us is the price point at which half the homes in the country sold for more, and half sold for less.

Real estate is a local phenomenon and so grouping the entire country’s supply of homes together makes little sense. A home in San Francisco has little to do with a home in Omaha.

To get a true gauge of your local market, talk to a real estate agent that knows the local market well. You’ll not only get meaningful statistics about a neighborhood, but you’ll get good insights, too.

Comments Off on The Small Statistic Within Consumer Confidence That Didn’t Show Up On The News

The Small Statistic Within Consumer Confidence That Didn’t Show Up On The News


Consumer Confidence fell to its lowest point in three years and anybody who watches the evening news can understand why.

Each day, news programs barrage Americans with tales of economic woe and American Opinion is largely shaped by the media.

After enough time, the reporting becomes a self-fulfilling prophecy.

But, in the Consumer Confidence report, there was a choice piece of data that isn’t getting reported by the news programs and it’s a rather important piece.

Although fewer consumers expect to buy automobiles and appliances over the next six months, those with plans to buy homes is actually higher by 14 percent.

In other words, despite weakening confidence in the economy, an increasing number of Americans are planning to buy homes this season and next.

Consumers may be motivated to buy this year by a number of factors:

  • Lower home prices nationwide
  • Affordable mortgage rates
  • Fear that mortgage products will require larger downpayment

Regardless, the media is choosing to ignore this part of the story. Instead, the news programs are focusing on the negatives — just look at the headlines.

It’s no wonder that confidence is down — bad news is all the American Public tends to hear.

Comments Off on How Seasonal Factors Change Homeowner Vacancy Rates

How Seasonal Factors Change Homeowner Vacancy Rates


Each quarter, the Census Bureau releases the Homeowner Vacancy Rate, a housing statistic the measures the percentage of homes for sale that are vacant.

A home listed for sale may be vacant for several reasons including:

  1. The home has been foreclosed and the owner has moved out
  2. The home seller moved into a new home and not sold his former home
  3. The home was a rental property and is being sold without a tenant

In Q4 2007, the Homeowner Vacancy Rate matched its all-time high of 2.8 percent.

The statistic can be misleading, however, because Homeowner Vacancy Rates appear to be seasonal and the fourth quarter is more prone to high figures.

As evidence: In 6 of the last 7 years, Q4 posted higher vacancy rates than for the preceding three quarters.

Vacancy rates may increase in the fall because homesellers without a “need” to sell tend to take their properties off the market during the Holiday Season. That leaves an over-weighting of empty homes for sale — precisely what the Homeowner Vacancy Rate measures.

For an interactive version of the chart above, visit the Wall Street Journal Online.

Housing Markets: A Vacant Look
The Wall Street Journal Online
March 21, 2008

Comments Off on Looking Back And Looking Ahead : March 24, 2008

Looking Back And Looking Ahead : March 24, 2008


Conforming mortgage rates edged slightly lower for the second week in a row.

Mortgage rates fell for two main reasons:

  1. The Federal Reserve offered fiscal support for troubled mortgage-backed securities
  2. A government group gave Fannie Mae and Freddie Mac permission to lend more of money to American homeowners

These two actions combined to make mortgage-backed securities safer for mortgage bond investors and when mortgage bonds are safer, their required rate of return (i.e. interest rate) comes down.

This is the financial concept of Risk vs. Reward in action.

Expect mortgage rates to be in flux and highly volatile again this week, however.

Aside from housing and consumer confidence data, markets will respond to Friday’s Personal Consumption Expenditures data. PCE is a “Cost of Living” index that the Federal Reserve watches very closely.

PCE is different from other Cost of Living indices because it accounts for “substitutes”. For example, if beef is getting too expensive, PCE will substitute chicken — much like a regular person would.

In this way, PCE better reflects the true cost of living for the average American.

PCE is expected to show 2 percent growth year-over-year. If the actual figure is higher, expect mortgage rates to rise on inflation concerns.

Comments Off on Re-Approve Your Pre-Approval

Re-Approve Your Pre-Approval

Proceed with your home buying, but proceed with caution -- your pre-approval may be outdated

Since December 2007, mortgage lending guidelines have changed very quickly and often without notice.

Some of the more well-known changes include:

  • Broad restrictions on stated income home loans
  • Broad restrictions on 100 percent financing
  • “Risk-based fees” for credit scores under 740

Some of the lesser-known restrictions relate to property type and occupancy status as well as debt-to-income levels and mortgage payment histories.

Because of the number of changes and their collective scope, home buyers should be prudent and get re-pre-approved for their home loan.

Even if you last spoke with your loan officer four weeks ago, it’s important to know how market changes could ultimately impact your home loan approval.

The market really is that different. Talk to your loan officer about a re-pre-approval today.

Comments Off on Making English Out Of Fed-Speak (March 2008 Edition)

Making English Out Of Fed-Speak (March 2008 Edition)


The Fed lowered the Fed Funds Rate by 0.750% to 2.250% yesterday.

Because it is tied to the Fed Funds Rate, Prime Rate also fell by 0.750% yesterday. Prime Rate is now to 5.250%.

Holders of home equity lines of credit and credit card debt benefited from the change and will see lower interest costs in next month’s statements.

Mortgage rate shoppers didn’t.

In the statement above — as explained by The Wall Street Journal — the Fed expresses a growing concern of inflation from rising commodity prices such as oil. In part, this caused the mortgage bond market to sell off immediately following the press release’s issue.

Mortgage rates rose close to a quarter-percent yesterday.

The Federal Open Market Committee’s statement leaves the possibility of future Fed Funds Rate cuts open. The FOMC’s next scheduled meeting is a two-day affair April 29-30, 2008.

Parsing the Fed Statement
The Wall Street Journal Online
March 18, 2008

Comments Off on Expect A Fed Funds Rate Cut This Afternoon

Expect A Fed Funds Rate Cut This Afternoon


The Federal Open Market Committee meets today and will issue a press release in addition to cutting the Fed Funds Rate at 2:15 P.M. ET.

The verbiage of the press release will be as widely watched as the rate cut itself because markets are curious about how far the Federal Reserve will go to lessen the impact of an economic recession.

With every Fed Funds Rate cut, recession becomes less likely, but the other side of the equation is that the probability of long-term inflation grows.

Like recession, inflation can be bad for the economy, too.

The Fed Funds Rate now stands at 3.000% this morning and the FOMC is expected to lower it by 0.750% or more this afternoon.

Mortgage rates are rising today because cuts to the Fed Funds Rate weaken the U.S. dollar which, in turn, makes mortgage re-payments less valuable to investors.

Comments Off on Looking Back And Looking Ahead : March 17, 2008

Looking Back And Looking Ahead : March 17, 2008


Mortgage rates fell last week on growing evidence of a recession, but far fewer Americans were eligible to take advantage.

Mortgage lenders continue to reduce product menus and that is leaving homeowners with fewer mortgage financing options than before.

As an added hurdle, Fannie Mae and Freddie Mac recently added “risk-based” fees on all conforming home loans, subjecting mortgage applicants to higher mortgage rates based upon:

  1. Property Type
  2. Credit Score
  3. Loan-to-Value

So, even though mortgage rates moved lower last week, for many homeowners, the cost of homeownership did not.

This week, the biggest scheduled news is the Federal Open Market Committee’s Tuesday meeting.

It’s widely expected that the Federal Reserve will lower the Fed Funds Rate by 0.75%, lowering Prime Rate to 5.250%.

This is good news for Americans carrying revolving consumer debt because those credit types are often tied to Prime Rate. Two popular types of revolving consumer debt are:

  1. Home equity lines of credit
  2. Credit cards

Meanwhile, a cut in the Fed Funds Rate should push mortgage rates up because Fed Funds Rate cuts can lead to inflation.

Since September 2007 — when the Fed started to cut its benchmark rate — the Fed Funds Rate is down 2.250% but mortgage rates are slightly higher. This is a normal occurrence and should happen again this week.

Markets will be closed for Good Friday this week.