Weekly Rate Lock Advisory
This week is moderately busy with four economic reports scheduled to be released. Only one of the four is considered to be of high importance to the markets and mortgage rates. The remaining three are of interest to the markets but likely will not cause a large change in mortgage rates unless they vary greatly from forecasts.
The first report of the week is also the most important. May's Producer Price Index (PPI) will be posted early Tuesday morning. It helps us measure inflationary pressures at the producer level of the economy and is the sister report to last week's Consumer Price Index (CPI). There are two readings of this index, the overall and the core data. The core data is considered to be the more important of the two because it excludes more volatile food and energy prices. A large increase could add fuel to the theory that inflation is a real threat to the economy because the higher prices will likely be passed on to the consumer in the near future. This would not be good news for bond prices or mortgage rates since inflation erodes the value of a bond's future fixed interest payments. Rising inflation causes investors to sell bonds, driving prices lower and mortgage rates higher. Analysts are expecting to see an increase of 1.0% in the overall index and a 0.2% rise in the core data.
The second of three reports being posted Tuesday is May's Housing Starts report. This report gives us a measurement of housing sector strength, but is the week's least important. It usually doesn't have a major impact on the bond market or mortgage rates and I see no reason for this month's results to be any different. Analysts are expecting to see a drop in starts of new homes between April and May.
The third and final piece of data scheduled for Tuesday is May's Industrial Production. This report will be released at 9:15 AM ET. It measures output at U.S. factories, mines and utilities, giving us an important measurement of manufacturing sector strength. If it reveals that production is rising, concerns of manufacturing strength may come into play in the bond market. A decline would indicate that the manufacturing sector is weaker than expected and should help push mortgage rates lower. Current forecasts are calling for an increase of 0.1%.
May's Leading Economic Indicators (LEI) will be posted late Thursday morning. The Conference Board, who is a New York-based business research group, will post this data. It attempts to predict economic activity over the next three to six months. If it shows rapidly rising levels of activity, bond prices will probably drop, pushing mortgage rates higher Thursday morning. But, a weaker than expected reading could lead to lower mortgage pricing. It is expected to show no change from April to May.
Overall, look for Tuesday to be the big day of the week. Not just because it brings the release of three of four reports, but because it brings us the PPI that is considered to be a key inflation reading. I am expecting to see the least amount of movement in rates tomorrow and Friday, unless the major stock indexes stage a considerable sell off or rally. However, I am still not sure that we have seen the end of the recent bond selling. Therefore, I am holding the lock recommendations for the time being.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Lock if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
The first of the week's three reports is of fairly high importance to the bond market. The Institute of Supply Management (ISM) will release their manufacturing index for June late Tuesday morning. This index measures manufacturer sentiment by surveying trade executives on current business conditions. A reading below 50 means that more surveyed executives felt business improved than those who felt it had worsened. Analysts are expecting another reading below 50.0. That would indicate that manufacturers felt business remained close to unchanged from the previous month. Good news would be a weaker than expected reading.
The Commerce Department post May's Factory Orders data late Wednesday morning, which is similar to the Durable Goods Orders report that was released last week. The biggest difference being that this week's report covers both durable and nondurable goods. It usually doesn't have as much of an impact on the bond market as the durable goods data does, but can lead to changes in mortgage pricing if it varies from forecasts. Current expectations are showing a 0.6% rise in new orders from April's levels. A smaller than expected rise in orders would be considered good news for the bond market and should help lower mortgage rates slightly Wednesday.
The only other important release of the week comes early Thursday morning. The Labor Department will give us June's unemployment rate, number of new payrolls added and average hourly earnings. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets.
The ideal scenario for the bond market is rising unemployment, a decline in payrolls and no change in earnings. Weaker than expected readings should help boost bond prices and lower mortgage rates. However, stronger than forecasted readings could be disastrous for mortgage pricing. Analysts are expecting to see the unemployment rate to slip 0.1% to 5.4%, while 50,000 jobs were lost and a 0.3% rise in earnings.
Overall, I am expecting to see the most movement in rates the latter part of the week. Tuesday morning should bring some volatility with the ISM index, but Thursday's report is definitely the most important of the week and can single handily lead to an improvement or increase in mortgage rates for the week.
If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Fed Pauses – You Shouldn't
The Federal Reserve, taking a break from its aggressive rate-cutting policy, chose not to alter key interest rates Wednesday, leaving the Fed Funds rate at 2.00% and everyone wondering where interest rates are headed next.
Since last September, the Fed has cut rates seven times for a total of 3.25%. However, many experts believe that the Fed's decision this Wednesday, along with comments from the meeting itself, indicate an increased concern over inflation. This means the Fed could start increasing rates as early as its next meeting, which takes place in August.
The Fed is in a quandary. The economy has slowed, led by a decline in home sales and rising inflation, stemming primarily from increasing energy prices. The Fed's primary role in relation to the economy is to combat inflation and preserve economic growth. To combat inflation, the Fed will ultimately have to increase interest rates in coming months.
What Does This Mean to You?
If you're looking to buy a house, consider these key points:
Housing booms follow housing busts – and the savvy buyers aren't afraid to jump into a tough market. But these savvy buyers know that homeownership is a long-term investment. Call me to discuss these points and get your purchase strategy on track. Ultimately, population growth and demographics point to a stronger housing market in coming years.
Even if you're not looking to purchase a home, opportunities still exist. With the Fed taking a breather, this doesn't mean you should be taking a break. It's never been more important to create a financial plan that makes the most sense to you and your family's long-term goals.
Give me a call at 800-711-1963
This week will likely prove to be very active in terms of mortgage rate movement due to the economic data and other events that are scheduled. There are six economic reports scheduled for release, but in addition to the data, another Federal Open Market Committee (FOMC) meeting will be held this week. Together, we have the makings of a potentially volatile week in the financial and mortgage markets.
There is no relevant economic news scheduled for release tomorrow. Tuesday brings us the first important report of the week with the release of June's Consumer Confidence Index (CCI). The CCI is very important to the financial markets because it measures consumer willingness to spend, which is important because consumer spending makes up two-thirds of the U.S. economy. If it shows an increase in confidence from last month, we can expect to see the bond market falter and mortgage rates rise slightly. Current forecasts are calling for a reading 57.0, down slightly from last month's 57.2 reading.
The only important release scheduled for Wednesday is May's Durable Goods Orders, which gives us an indication of manufacturing sector strength. It is known to be quite volatile from month to month and is expected to show no change new orders from April to May. A decline in new orders would be the ideal scenario for the bond market and could lead to a decline in mortgage pricing Wednesday.
There are two housing related reports scheduled for release this week, but neither is likely to cause any movement in mortgage rates. May's New Home Sales will be released Wednesday morning while Existing Home Sales will be posted Thursday morning. These reports give us a measurement of housing sector strength and mortgage credit demand, but usually do not cause much movement in mortgage rates.
The FOMC meeting that begins Tuesday afternoon will adjourn Wednesday afternoon. It is widely expected that Mr. Bernanke and company will not change key short-term interest rates at this meeting. But, as we have seen so many times in the past, it is the post meeting statement that often creates the most volatility in the markets. They could give an opinion of the overall economy, hinting at a possible future move or lack of one. Statements like these could cause a knee-jerk reaction in the markets and possibly mortgage pricing Wednesday afternoon. I suspect we will hear concerns about inflation that will lead to selling in bonds.
The only relevant economic data scheduled for release Thursday is the final reading to the1st Quarter GDP and weekly unemployment claims. The GDP data is quite aged now (covers January through March) and will likely have little impact on the bond market or mortgage pricing unless it varies greatly from previous readings. Last month's first revision showed a 0.9% rate of growth, but analysts are expecting to see an upward revision to 1.0%.
May's Personal Income and Outlays data will be posted Friday morning. This report gives us an indication of consumer ability to spend and current spending activity. Analysts are expecting to see an increase of 0.4% in income and a 0.7% rise in the spending portion of the report. Smaller than expected increases should be good news for the bond market and mortgage rates.
Overall, tomorrow will likely be the quietest day of the week. The most active should be Tuesday or Wednesday to the importance of the data and FOMC meeting. Wednesday's Durable Goods Orders could also help make it a busy day. Friday's news may also affect mortgage rates, but likely not as much as earlier days. This would definitely be a good week to maintain constant contact with your mortgage professional.
Recession-proof your home
TODAY real estate contributor Barbara Corcoran gives advice on getting the most for your house in tough economic times.
My Credit Score Just Dropped, What Happened?
You've been working really hard to increase your credit score. You've done everything you thought you were supposed to do to present yourself as a creditworthy individual. So, why did your score suddenly drop? What happened?
Unfortunately, this is a common occurrence with many consumers today, a situation that likely could've been avoided if you had only been working with a qualified credit improvement specialist from the beginning. Remember, there's no shame in seeking help with your credit. Credit scoring models are based on a number of factors that, when combined, add up to a formula that might not seem logical to those who don't deal with these kinds of issues on a daily basis.
The following are just a few examples of seemingly innocent actions that could cause your score to suddenly and dramatically drop.
I paid off my biggest credit card debt and closed the account, but my score dropped anyway. This is one of the most frustrating situations for many borrowers. You would think that paying off your biggest debt and closing your account would be a good thing - and it is. But, because of the five factors of credit we discussed in a previous article, this action could reflect poorly on your credit score because you chose to close the account. Depending on your situation, the account you closed could've been your oldest credit account with the highest credit limit, two major factors in calculating your score.
I maxed out my card, and even though I paid it off completely when I got my statement, my score still dropped. By maxing out your card, your overall credit ratios were adjusted. And even though you paid it off, your statement reflects your current status. In other words, your credit report shows that your account is maxed out, even if you pay it off the next day. The best thing you could've done here was to pay your bill before your statement arrived.
I was only one day late on my payment but I still received a 30-day late on my credit report. Unfortunately, your creditors do not distinguish the difference between one day and 30 days late. You must pay your monthly bills on time every time to avoid this penalty. Depending on which credit cards you have, you could suffer an additional penalty for being late on your credit card payments, even just one time. It's called the universal default clause, which could increase your interest rates on all your credit cards up to 38%, even if you're in good standing with your other accounts!
I paid off an old collection and my score dropped significantly. While it might seem illogical or even unfair, sometimes paying off a collection account can actually cause more harm than good. Remember, credit scoring models typically lend more weight to your recent activity than to the mistakes you might've made in the past. By paying off this old account, you may have inadvertently added more weight to this mistake from the past by making this item current.
Don't be shy about asking for help when it comes to your credit score. Remember, your credit is the most valuable financial tool you have at your disposal, and having an expert on your side is always smarter than learning the hard way on your own.
If you or anyone you know has questions about credit. Give us a call at your convenience. We'll be glad to review your credit and see what, if anything, needs to be done to help you meet your financial goals and needs.
Stay tuned for more great credit tips!
This week brings us the release of five pieces of data for the markets to digest. The most important news will be posted late in the week, so we may see the most movement in rates during those days. The first part of the week will likely be driven by stock market gains or losses.
The week's first but least important data is April's Goods and Services Trade Balance report Tuesday morning. This report gives us the size of the U.S. trade deficit and will be released at 8:30 AM. It isn't likely to cause much movement in the markets or mortgage rates, but nevertheless forecasts are expecting to see a $59.5 billion deficit.
Late Wednesday, the Federal Reserve will release its Beige Book. This data details economic conditions throughout the U.S. by region. It is relied upon heavily by the Federal Reserve during FOMC meetings when determining monetary policy. If it shows slowing economic activity, the bond market may thrive and mortgage rates could drop shortly after the 2:00 PM ET release. If it reveals signs of inflation growing, we could see mortgage rates revise higher Wednesday afternoon.
May's Retail Sales data will be released Thursday morning. This report measures consumer spending, which is important to the bond market because consumer spending makes up two-thirds of the U.S. economy. Analysts are expecting to see that sales rose 0.6% last month. A smaller than expected rise in sales would be good news for the bond market and could lead to lower mortgage rates Thursday.
There are two reports scheduled for release Friday. The first is May's Consumer Price Index (CPI) that measures inflationary pressures at the consumer level of the economy. This is one of the most important reports we see each month. There are two readings of this index, the overall and the core data. The core data is considered to be the more important of the two because it excludes more volatile food an d energy prices. A large increase could raise fear in the bond market that inflation is a threat. This would not be good news for bond prices or mortgage rates since inflation erodes the value of a bond's future fixed interest payments. Rising inflation causes investors to sell bonds, driving prices lower and mortgage rates higher. Analysts are expecting to see an increase of 0.5% in the overall index and a 0.2% rise in the core data.
The last report of the week is June's preliminary reading to the University of Michigan Index of Consumer Sentiment. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. It is expected to show a reading of 57.5. A larger then expected decline in consumer confidence would be considered good news for bonds, however, CPI report is much more likely to have a bigger impact on the markets than this one will.
Overall, it is going to be a fairly busy week for the financial markets. We will likely see the biggest changes to mortgage rates the latter part of the week. I feel that Friday will be the single most important day of the week but Thursday also is likely to bring significant movement in rates. Accordingly, this would be a very good week to maintain fairly constant contact with your mortgage professional.
U.S. Foreclosures Hit Record High
New numbers show home foreclosures up 35 percent from last year, with more than 6 percent of all U.S. housing loans now delinquent.
Don’t Buy a Cheap House.
Buy good schools. Look for areas with highly rated schools because they fare much better during economic down turns.
Since You Can’t “Time” the Bottom, Just Pick a Great House.
This is the best buyers have had it in 2 years! Rates go up and down. So do real estate values. Rates are low. Inventory is high. Find the perfect place and drive a hard bargain.
Buy Now Because Rates are Low.
While the Federal Reserve has slashed prime rates, mortgage rates don’t necessarily follow the Fed. However, fixed rates are extremely low and even if home prices fall further, a 1% increase in the rate could decrease your purchasing power by $25,000.
This week brings us the release of a couple important pieces of economic data in addition to some moderately important reports. There are a total of four or five reports that are worth watching and are most likely to affect mortgage rates.
The first is the Institute for Supply Management's (ISM) manufacturing index late tomorrow morning. This highly important index measures manufacturer sentiment. A reading below 50 means that more surveyed manufacturing executives felt that business worsened during the month than those who felt it had improved. A sub-50 reading is also considered recessionary news. Analysts are expecting to see a 48.0 reading in this month's release, meaning that sentiment slipped slightly during May. A smaller reading will be good news for the bond market and mortgage shoppers while an unexpected increase could contribute to higher mortgage rates.
Tuesday's only relevant news is the Commerce Department's release of April's Factory Orders data. This manufacturing sector report is similar to last week's Durable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn't expected to cause much change in rates this month. Current forecasts are expecting to see an increase in orders of 0.1%.
The revised 1st Quarter Productivity and Costs report will be released Wednesday morning. This data measures employee output and employer costs for wages and benefits. It is considered to be a measurement of wage inflation. It is believed that the economy can grow with low inflationary pressures when productivity is high. Last month's preliminary reading revealed a 2.2% rate, but I don't think this piece of data will have much of an impact on the bond market or mortgage pricing unless it varies greatly from its forecasted reading of 2.5%.
The second report of the day may have a significant impact on the markets or be a non-factor depending on its result. The Institute for Supply Management will release its services index late Wednesday morning. It is expected to show a reading of 51.0, with the same principals as Monday's manufacturing index. If this reading varies greatly from forecasts, we may see volatility in the markets and mortgage rates. However, if its results are in the general area of expectations, it will likely have no influence on the markets and mortgage pricing.
There is no relevant economic news scheduled for release Thursday, however, Friday's sole report is arguably the single most important report that we see each month. The Labor Department will post May's Employment data early Friday morning. This report gives us key employment readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate climb to 5 .1% with approximately 52,000 jobs lost during the month. A higher than expected increase in the unemployment rate and a larger drop in payrolls would be great news for the bond market. It would probably create a sizable rally in bonds, leading to lower mortgage rates Friday. But, stronger than expected numbers would likely lead to a spike in mortgage rates.
Overall, today or Friday are likely to be the most important days of the week as they bring us the two most important reports on the agenda. If they give us weaker than expected results, we will probably close the week with lower mortgage rates than tomorrow's opening levels. However, if we see stronger than expected readings in those two releases, I expect mortgage rates to move higher on the week.
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