Archive for November, 2007
The Week In Review (November 26, 2007) : What To Watch For
Posted by: | CommentsIn a holiday-shortened trading week, mortgage rates finished the week slightly improved.
But, because many traders had left early for Thanksgiving, matching buyers and sellers at any given price proved to be an exercise. Mortgage rates bounced wildly as a result.
Between now and the New Year, expect the same volatility. Fewer market players means less stability in mortgage bond prices and, therefore, in mortgage rates.
This week, markets have a plethora of data to digest, plus they will be speculating about the outcome of this year’s Holiday Shopping season. With more spending by shoppers, fears of a recession should wane, stabilizing mortgage rates somewhat.
On Tuesday, we’ll see the Existing Home Sales report for October. There’s nothing that should surprise us here — the real estate story has been beaten to a pulp in the papers. Any figure below 5 million, though, will likely spark talk of a recession. That could be bad for mortgage rates.
The same can be said for Thursday’s New Home Sales report. Remember that the difference between existing sales and new sales is that Existing Home Sales measures homes sold by a “homeowner”; New Home Sales measures homes sold by a developer/builder.
Then, on Friday, we’ll be treated to the Federal Reserve’s favorite inflationary measure — the Personal Consumption Expenditures (PCE). PCE is expected to show 1.8 percent year-over-year growth, a figure generally believed to be neutral. If PCE surprises to the high-side, expect mortgage rates to rise on fears of inflation.
Black Friday Trivia
Posted by: | CommentsToday is “Black Friday”, a day that many Americans get started on their Holiday Season shopping.
Did you know? The earliest known reference to “Black Friday” is November 29, 1975. The term was mentioned in two separate articles, both with Philadelphia timelines. Therefore, the term Black Friday is believed to have originated in Philadelphia.
Did you know? “Black Friday” was originally named with deference to other stressful and chaotic days such as Black Tuesday (the day of the 1929 stock market crash.
Store aisles were jammed. Escalators were nonstop people. It was the first day of the Christmas shopping season and despite the economy, folks here went on a buying spree. . . . . “That’s why the bus drivers and cab drivers call today ‘Black Friday,’” a sales manager at Gimbels said as she watched a traffic cop trying to control a crowd of jaywalkers. “They think in terms of headaches it gives them.”
Did you know? The generally accepted meaning of “Black Friday” changed November 26, 1982. On that day, ABC News reported that Black Friday is the day that retailers’ ledgers go from red ink to black ink, signaling profit. If this were true, companies like Wal-Mart and Target would show losses in the first three quarters of the years. They don’t.
Did you know? Black Friday is not the busiest shopping day of the year. #1 is usually the Saturday prior to Christmas.
If you’re out shopping today on Black Friday, remember to set a budget and stay within it. Good luck!
Sources
Purdue University News Service
“Christmas Shopping Facts and Figures”
Press Release, Nov. 22, 2000
http://www.newswise.com/p/articles/view/21693/
Black Friday (Shopping)
Wikipedia
http://en.wikipedia.org/wiki/Black_Friday_%28shopping%29
Who Are Fannie And Freddie And How Do They Help Homeowners?
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Fannie Mae and Freddie Mae are quasi-government agencies in that they are publicly-owned, but overseen by the government.
The purpose of Fannie and Freddie is to make sure that money is available to homeowners that want home loans.
Neither lends to consumers directly, though; you’ll have to talk to your loan officer for that. Instead, Fannie and Freddie’s role is to buy loans from lending institutions that make loans to everyday people.
For example, all banks in America abide by laws limiting the amount of money they can lend as a percentage of their total asset base. If your home loan is on the books of Bank ABC, Bank ABC is, therefore, restricted in issuing additional loans because your loan counts against that ratio.
But, if Bank ABC sells the loan to Fannie Mae or Freddie Mac, your mortgage converts back into cash and Bank ABC can then lend again to somebody else.
Because of Fannie and Freddie, a bank can lend to multiple homeowners using the same asset base, thereby making sure that “the system” has plenty of money available for homeowners in need of loans.
In this sense, both Fannie and Freddie keep mortgage money flowing on the street level. But it only works to a point. Fannie and Freddie have very strict guidelines about what types of home loans they will purchase from banks and only accept loans that conform to their respective criteria.
Loans falling outside the criteria, by contrast, will not be purchased by the agencies.
This is why some mortgages are called “conforming” loans — they conform to Fannie or Freddie’s guidelines. The other loans fall into the categories of “Alt-A” or “sub-prime”.
This also explains why Alt-A and sub-prime loans are harder to come by lately — there’s no government agency that guarantees to purchase these types of loans. Without that guarantee, banks are largely unwilling to tie up space on their balance sheets.
On Random Rate Rallies And Thin Trading
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Mortgage bonds staged a late-day rally yesterday, exaggerated by the holiday-shortened week and because trader participation is light.
(We’ll revisit this theme several times between now and the New Year so don’t get tired of it.)
When mortgage bonds rally, it means that demand for them is strong and that pushes mortgage rates down.
Unfortunately for people shopping for loans right now, the rally happened so quickly that lenders did not have time to adjust their mortgage rate sheets before the market’s closing.
This morning, rates are slightly higher.
The rally yesterday happened for a number of reasons including the November Homebuilders Index remaining at an all-time low. This illustrates the difficulty most developers are having in moving their inventory.
Another factor in the rally is that markets believe that the Fed is backed into a economic corner and will be forced to lower the Fed Funds Rate at its December meeting. This is happening despite (non-voting) Fed member Randall Kroszner implying in a public speech that the Fed may be entering a “Wait-and-See” mode and the further rate cuts would be imprudent.
There will be a lot of speculation about the Fed between today and December 11, the date of the next Fed meeting. Expect thin trading volume to make rates yo-yo until then.
If you see a rate and payment combination that makes financial sense today, better to lock it in then to wait for tomorrow. Rates may be on the upswing.
The Week In Review (November 19, 2007) : What To Watch For
Posted by: | CommentsIn a holiday-shortened week with no major economic data releases, expect worries about the credit markets and speculation about holiday shopping to take center stage.
Last week was a mixed bag for the economy and mortgage markets responded in kind. Rates were relatively unchanged.
The news started with Wednesday’s Retail Sales report. In showing a modest increase, the ongoing fears of a consumer spending decline were allayed.
This is good news for the economy as a whole because consumer spending accounts for roughly two-thirds of the U.S. economy — even a small dip could push a precariously balanced economy into recession.
Unfortunately, this could be bad news for rate shoppers as individuals – a slowing economy could drag down mortgage rates with it. And, with six weeks remaining in the Shopping Season, the American Consumer appears to want its presents.
Also making news last week:
- CPI data showed that the Cost of Living increased 2.2% in the past year
- Oil prices fell from its all-time high, reducing inflationary pressure on the economy
- Gas prices fell nationally, shedding 3 cents per gallon according to GasBuddy.com.
This week, expect mortgage rates volatility as we get closer to Thanksgiving; fewer traders will be participating. With fewer buyers and sellers, it’s harder to find “the right price” for mortgage bonds.
This same economic phenomenon may explain why it’s easier to buy or sell a home in the Spring than in the Winter — more market participants makes it easier to find a match.
Most important release of the week: Wednesday’s University of Michigan Consumer Sentiment survey. If it comes in strong, expect positive reaction in stock markets which will, in turn, drag down mortgage bonds and push rates higher.
Palo Alto Mom of three, FHA loan officer
