This Week’s Market Commentary

This week is extremely active with seven relevant economic reports in addition to another FOMC meeting and two fairly important Treasury auctions. The economic reports range from low importance to extremely high importance with the majority being in between those two.

There is relevant economic data being posted each day of the week, making it likely that we will see a fair amount of movement in mortgage pricing over the next several days.

March’s New Home Sales will be released late this morning. It gives us an indication of housing sector strength and mortgage credit demand, but is the week’s least important report. Unless it varies greatly from analysts’ forecasts, I am not expecting the data to cause much movement in mortgage rates. Analysts are currently forecasting a sizable increase in sales of newly constructed homes.

The Conference Board will post April’s Consumer Confidence Index (CCI) late Tuesday morning. This index is a key indicator of future spending by consumers. The group surveys 5000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security and investments, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation and economic growth concerns to a minimum. But, a sizable increase could hurt the bond market, pushing mortgage rates higher Tuesday. It is expected to show a reading of 64.4, which would be an increase from March’s 63.4 reading. The lower the reading, the better the news for mortgage rates.

March’s Durable Goods Orders will be released early Wednesday morning. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. These are products that are expected to last three or more years, such as appliances and electronics. Current forecasts are calling for an increase in new orders of 1.9%. This would be a sign of manufacturing sector growth, but this data can be quite volatile from month-to-month. Therefore, a small variance between forecasts and the actual results will not heavily influence the markets or mortgage rates. A decline would be considered good news, while a large increase would indicate manufacturing sector strength. A sign of solid manufacturing growth could lead to higher mortgage rates Wednesday.

This week’s FOMC meeting will begin Tuesday but will not adjourn until Wednesday afternoon. It will likely adjourn with an announcement of no change to key short-term interest rates, but we may see some volatility in the markets following the 2:15 PM ET post-meeting statement. There appears to be more and more discussion about when the Fed will have to start raising key interest rates to prevent inflation from strengthening. If the statement gives any hint of when that may be, or there is a change in the regular canned portions of the statement, we could see a sizable change to mortgage rates Wednesday afternoon.
In addition to this week’s economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during afternoon hours.

Thursday has the single most important data of the week. That would be the preliminary version of the 1st Quarter Gross Domestic Product (GDP). This is arguably the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. I expect this report to cause major movement in the financial markets Thursday and therefore the mortgage market also. Analysts are expecting it to show that the economy grew at an annual rate of 1.7%, which would be a sizable drop from the final quarter of last year. A smaller increase would be considered good news for mortgage rates. But, a stronger than expected reading would almost certainly cause stock prices to rise and bond prices to fall, leading to higher mortgage rates Thursday morning.

The week does not close quietly with three reports scheduled for Friday morning. March’s Personal Income & Outlays is the first of them, coming early Friday. It helps us measure consumers’ ability to spend and current spending habits, which is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer’s income is rising, they are more likely to make additional purchases in the near future. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.4% increase in the income reading and a 0.5% rise in spending. If we see smaller than expected readings, the bond market should open higher Friday morning, making an improvement to mortgage rates a good possibility.

The second report of the day is the 1st Quarter Employment Cost Index (ECI), which tracks employer costs for wages and benefits. This gives us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns cause the bond market to fall and mortgage rates to rise. A smaller than expected increase would be good news for the bond market and mortgage pricing. Current forecasts are showing a rise of 0.5%.

The last piece of a data is the University of Michigan’s update to their Index of Consumer Sentiment for April. This report gives us an indication of consumer sentiment. I don’t expect it to have a significant impact on bonds and mortgage pricing unless it varies greatly from forecasts. Current forecasts are calling for little change from the preliminary reading of 69.6. This means that surveyed consumers were just as optimistic about their own financial situations as they were earlier this month.

Overall, look for plenty of movement in the financial markets and mortgage rates several days this week. Wednesday will likely be the most important day of the week with the FOMC adjournment and the fairly important Durable Goods data, but we may also see noticeable changes to rates Thursday after the GDP is posted. If this week’s reports reveal weaker than expected economic conditions, the bond market should extend its rally and mortgage rates should fall for the week.

Homes Sales in Santa Clara Country Hit 4-Year High

This past March has seen the most home sales in Santa Clara and San Mateo counties in four years. According to an article in the San Jose Mercury, sales were up 4 and 5% in the respective counties  since March last year.

However, prices remain lower in these counties. “The median price for a single-family home in Santa Clara County was $528,000, down 4 percent; the median sales price in San Mateo County was $595,000, down 15 percent from a year ago,” said the Mercury.

South Bay sales were greater than Bay Area sales as a whole, with a 1.9% increase in home sales.
Foreclosure sales made up 31.5 percent of Bay Area resale transactions. Short sales — at prices less than the value of the mortgage on a home — made up 17.6 percent of the market.

The president of Dataquick, which measured these results, said “The housing market has certainly moved well back from the abyss of two years ago… [but] The big issue continues to be mortgage financing, which is still problematic for many potential borrowers.”

Inexpensive Home Maintenance Tasks Can Prevent Big Expenses in the Future

For a few hours’ time and a small investment, you can do a lot to protect your property. Even renters can ensure comfortable surroundings with some of these tips.

Get energy efficient. If you have not yet installed a programmable thermostat, now is the time to do it. You can reduce your cooling costs by 10 percent, according to the U.S. Department of Energy. Thermostats cost $40 to $70.

Seal around the tub and shower. Cracked or poorly sealed caulking around tubs, showers, and sinks can lead to water damage to floors, walls, and the ceilings below, say experts writing in Money magazine. When you see cracks or gaps, buy a $5 tube of caulking and reapply.

Prevent fires. Check your fire extinguisher to see if it’s still charged. If you need a new one, buy an extinguisher that works on both kitchen and electrical fires. The National Fire Protection Agency recommends one that is labeled ABC. Cost is about $40.

Test the sump pump. Before a heavy rain floods your basement, test your sump pump to see if it works. Pour water into the well around it. Raising the water level should make it go on.

Prevent shocks. Electrical outlets near water in the kitchen and bathroom should have ground fault circuit interrupters that protect from a shock They have “test” and “reset” buttons. If you need one, the GFCI costs about $10, but you should hire an electrician to install it.

Service the garage door. Spray penetrating oil such as WD-40 into the hinges and rollers so the door will open and close more easily. Test the safety reverse mechanism by placing an object in the door’s path to see if it stops. WD-40 costs about $7.

This Week’s Market Commentary

This holiday-shortened week is pretty light in terms of economic news scheduled for release. There are only three economic reports scheduled and none of them are considered to be highly important to the financial or mortgage markets.

Accordingly, there is a decent possibility of seeing a relatively calm week in the mortgage market, assuming that the stock markets do the same.

There is nothing of importance scheduled for release today. March’s Housing Starts is the first data, coming early Tuesday morning. It gives us a measurement of housing sector strength and mortgage credit demand by tracking starts of new home construction and the number of permits issued for future starts.

This data usually doesn’t cause much movement in mortgage pricing unless it varies greatly from forecasts. It is expected to show an increase in construction starts of new homes. Good news for the bond market and mortgage rates would be a decline in home starts, indicating housing sector weakness.

Wednesday’s only data is March’s Existing Homes Sales numbers from the National Association of Realtors. This report also gives us an indication of housing sector strength and mortgage credit demand. It is considered to be moderately important to the markets, but can influence mortgage pricing if it shows a sizable variance from forecasts. Ideally, the bond market would like to see a drop in home resales because a soft housing sector makes a broader economic recovery difficult. Analysts are expecting to see an increase in sales between February and March. The larger the increase, the worse the news for bonds and mortgage rates.

The third and final report of the week will be posted late Thursday morning when the Conference Board releases their Leading Economic Indicators (LEI) for March. This data attempts to measure economic activity over the next three to six months. This is considered to be a moderately important report, so we may see a slight movement in rates as a result of this report. It is expected to show an increase of 0.2%, meaning it is predicting slight growth in economic activity over the next several months. A smaller increase, or a decline would be considered good news for the bond market and could lead to slightly lower mortgage rates.
The bond market will close early Thursday and will remain closed Friday in observance of the Good Friday holiday. The stock markets will be open Thursday for a full day of trading, but will also be closed Friday. The markets will reopen for regular hours Monday morning. The early close and Friday holiday may lead to some volatility in bonds Thursday afternoon as investors protect themselves over the long weekend. I don’t believe that this volatility will necessarily impact mortgage rates, but the possibility does exist, especially if the preceding days were active.

Overall, it is difficult to label one particular day as the most important of the week with no key economic data or other events scheduled. A good part of the week will likely be heavily influenced by the stock markets. If the major stock indexes rally, bonds will likely suffer and mortgage rates will move higher. If stocks fall, we could see mortgage rates move lower the next few days. There is nothing on the agenda that is of much concern, but keep an eye on the markets and maintain contact with your mortgage professional if still floating an interest rate as conditions can change at any time.

A House Remains a Great Shelter from the Storm

Knight Kiplinger, editor-in-chief of Kiplinger’s Personal Finance, reminds homeowners and home buyers that an investment in a home not only a sanctuary for you and your family, it also remains a great tax shelter.

The ability to deduct property taxes is “the last great tax shelter” and you get a tax break on a large part of the profits if you decide to sell in the future, Kiplinger says.

Kiplinger speculates that for some years to come, home values will not rise much more than the national level of inflation. Values will still rise but they won’t skyrocket, he says. That means that, unlike in the bubble years, when you buy a house now, you can’t expect to make a huge profit if you sell the house in a year or two.

But speculating in real estate is not the most important thing homebuyers are looking for. Rather, they visualize the place they want and search for more comfort, convenience and enough space, a home where they can relax and raise their families.

Some look forward to living in the same home for many years. They dream of holiday gatherings in the homestead with their children and grandchildren.
A home is the largest investment most people will ever make and it is the most desired investment.

 Fortunately, thanks to the modern mortgage system, people don’t have to save for decades to afford a house.Low mortgage interest rates give the practical-minded another reason to move forward with housing plans. While the average 30-year mortgage interest rate is about 4.17 percent, some mortgage companies are offering even lower rates.
 While rents rise every year, fixed mortgage payments stay the same.
Some retirees want to age in place, that is, keep their home for years after they retire. Others want to downsize. If less space is what they want, that problem is easy to solve.

The Complicated World of Credit Scores

Lenders use different credit scores for different purchases.

If you have successfully navigated a website that offers to sell you your credit score, you may think you have all the information you need in order to apply for a loan or new credit card.

Not necessarily. The score you received could be quite different from what a lender receives. Different scores are offered for mortgages, car loans, insurance and more.

Under the Fair Credit Reporting Act that took effect January 1, lenders must either tell those who apply for credit what score was used, or tell them how it was used if the applicant doesn’t receive the best terms available.

Here are some reasons why a credit score (a number between 300 and 850) still won’t tell you how a lender evaluates of you:

* Some lenders give the best rates to people with a score of 740, others may use 760 or higher. Some give credit to people with scores in the high 500s, but others require 620 or more.

* Credit scores don’t reflect whether you are making good financial decisions or poor ones.

If you refinance your home at a lower interest rate, inquiries could show up on your report. Inquiries lower a score.

* Late payments show up on your score for a couple of years, but paying down a high balance has an immediately beneficial impact.

* If you pay your credit card bill in full every month, you don’t get a zero balance on your credit report. The report shows the balance at the end of the billing period, before the payment.

* Rather than checking your score frequently, you are better off making sure the information on your report is correct. Make your payments on time and reduce monthly balances for a month or two before applying for a loan or mortgage.

Great article from the Wall Street Journal

http://blogs.wsj.com/economics/2011/04/12/real-estate-bust-hasnt-dimmed-americans-faith-in-real-estate/

Good news for Silicon Valley job market

http://www.cnn.com/2011/TECH/innovation/04/05/silicon.valley.job.market/index.html?iref=allsearch

Last Chance: 3.5 Percent Down

Mortgage industry changes: Low rates and terms may soon be history

You are going to be hearing a lot about restructuring the mortgage industry in the next months and years.
But the bottom line for home buyers is buy now and get financing in place by as early as May. The great terms of recent years will soon be gone, and probably gone forever.

Experts say you will probably never again see down payments in the 5 percent range (even now becoming harder to find) or 30-year fixed rates under 5 percent.

The median down payment in nine major U.S. cities rose to 22 percent late last year. This was the highest requirement since 1997 on properties purchased through conventional mortgages, according to a Wall Street Journal report.

In many areas, however, a down payment of only 10

percent of the mortgage amount could be available for people with high credit scores.

The lowest down payments are still offered by the Federal Housing Administration, FHA. They will finance a home with a 3.5 percent down payment.

But a recent Obama Administration white paper on the mortgage industry hints that this very low down payment might change as the federal footprint in the mortgage market shrinks.

According to CNN Money, Congress will be considering raising FHA down payment requirements, approving higher insurance fees for FHA mortgages, and changing rules for ‘qualified’ mortgages.  This could mean higher interest rates for consumers and higher down payments, perhaps up to 30 percent.

With its low down payment requirements, low interest rates, and lower credit score requirements, FHA now has a 30 percent market share in the mortgage arena but plans are to reduce its activity to just 10 percent.

Administration officials say the planned process could take some time, but it might include phasing out federal backing of Fannie Mae and Freddie Mac. Since the mortgage crisis began, the government has bailed out the federally backed entities to the tune of $150 billion.

This Week’s Market Commentary

This week brings us the release of little relevant economic data for the markets to digest. We will, however, see the minutes from the last FOMC meeting.

There are no important monthly economic reports scheduled for release this week, so look for the stock markets to heavily influence bond trading and mortgage rates.

There is nothing of relevance scheduled for today or Tuesday morning, but Fed Chairman Bernanke will be speaking at a financial conference in Georgia tomorrow evening. Whenever he speaks, the markets pay attention and this one will be no different.

However, since the speech is at 7:15 PM ET, we won’t see its impact on the financial and mortgage markets until Tuesday morning. I don’t believe that his words will cause too much movement this time, but the potential does exist, especially since it is an extremely light week in terms of economic releases and other relevant events. Therefore, we should be attentive to what he says.

The first important event comes Tuesday afternoon when the Fed releases the minutes of their last FOMC meeting. Market participants will be looking at them closely. They give us insight to the Fed’s current thought process and individual Fed member opinions.
Any surprises in the 2:00 PM ET release, particularly about inflation or when the Fed may start raising key interest rates, could cause afternoon volatility in the markets Tuesday and possible changes in mortgage pricing.

The only other data worth mentioning is the weekly release of unemployment figures Thursday morning. This data usually does not impact mortgage rates much, but due to the lack of other data on the calendar this week’s update could influence rates. Analysts are expecting the Labor Department to announce that 385,000 new claims for unemployment benefits were filed last week. This would be a small decline from the previous week. The larger the number, the better the news for the bond market and mortgage rates.

Overall, there are several variables that could make this week very quiet or quite rocky for mortgage shoppers. Tuesday’s FOMC minutes could very well be a major market mover or a complete non-factor. In other words, we may have a very calm week ahead of us, or we may see rates move noticeably several days. With no important economic data to drive trading and mortgage rates, bonds may move with stocks. This means large stock gains could lead to bond selling and higher mortgage rates. But stock weakness could lead to mortgage pricing improving for the week.