"THE DEVIL IS IN THE DETAILS..."
Or so the famous saying goes. And when it comes to really understanding the various reports and events unfolding in the economy, it's important to take a look at the details - not just the headlines. Here's what you need to know.
On the inflation front, the Producer Price Index, which measures wholesale inflation, unexpectedly fell due to a drop in energy prices. While that seems like good news on the surface, keep in mind that next month's number could climb higher again, as oil and natural gas have both been on a tear higher lately.
In housing news, Housing Starts and Building Permits both came in a bit below expectations, but this may be a sign that builders are exercising some caution - particularly in the face of the $8,000 tax credit for first time homebuyers that is presently set to expire on November 30th. Existing Home Sales came in better than expected - and a whopping 45% of those homes were sold to first time homebuyers - rushing to move in on that credit. Recent studies have shown that many who qualify for this tax credit aren't even aware of it...so please let me know if you or someone you know needs more information - the clock is ticking!
Additionally, the level of existing homes inventory shrunk to a 7.8 month supply, down from a recent high of 10.1 months in April.
In other news, 3rd quarter earnings season continues, where companies report their status as of the end of September. While many companies are beating expectations, it's important to realize that many of those companies achieved better earnings by cost cutting and layoffs, not from increased sales. This is a big disconnect between Wall Street and "Main Street". Stocks are rocketing higher based on these "positive" reports, but the cost cutting and job cutting measures can only go so far...you can't simultaneously grow the ranks of unemployment - and then grow your business, hoping for increased sales to those same people who are without jobs.
Last week's Jobless Claims numbers seem to confirm this as Initial Jobless Claims rose more than expected. In addition, the number of individuals continuing to receive unemployment benefits fell to the lowest level since March, but this is likely the result of people's unemployment benefits expiring, without them having been able to find jobs.
Also worth noting is the news that ratings agency Moody's lead analyst, Steven Hess, said that the US needs to cut its deficit or it could lose its "AAA" rating in the next 3 to 4 years, which we have maintained since 1917! Think of all we've been through - two World Wars, the Depression, three Wall Street collapses and major terrorist attacks...yet our credit quality has maintained that AAA rating, allowing us to issue debt at the most favorable rates. Hess went on to say that if the US doesn't "get the deficit down in the next 3-4 years to a sustainable level, then the rating will be in jeopardy." And just like on a mortgage when the credit rating gets reduced, interest rates move higher. This will definitely be something we'll keep an eye on in the months ahead.
After all the week's action, Bonds and home loan rates ended the week slightly worse than where they began.
Another record sized round of Treasury auctions are on tap this week - and the massive amounts of supply that continue to flood the market can cause home loan rates to move higher, if there is ultimately not enough demand to sop up all the supply. Additionally, there are several economic reports which could be market movers. Tuesday brings both the Consumer Confidence and Durable Goods Reports, the latter of which gives us an update on consumer and business consumption and buying behavior via data on items that are non-disposable, such as cars, furniture, appliances, games, cameras, business equipment, etc.
On Wednesday, there will be more news on the housing front with the New Home Sales Report, while Thursday brings another Initial Jobless Claims Report. Thursday also brings a read on the economy with the Gross Domestic Product (GDP) Report, which is the broadest measure of economic activity. And the week could end with a bang, as Friday brings the Fed's favorite gauge of inflation, the Core Personal Consumption Expenditure (PCE) Index, found within the Personal Income Report.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.
As you can see in the chart below, Bonds held their ground for most of the week but ultimately were unable to remain above a key technical support level. I'll be watching closely to see what happens in the week ahead - and as always, reach out to me if you or others in your network need more information or questions answered...I'm here to help.
Monday, October 26, 2009
For the week of October 26, 2009
INFO THAT HITS US WHERE WE LIVE
The week ended with the terrific news that Existing Home Sales shot UP 9.4% in September to a 5.57 million annual rate. This was almost twice the increase the consensus expected and a nice boost coming off the slight drop we saw in August. Best of all, the inventory is now down to a 7.8 month supply, getting us closer and closer to the 6-month level of a normal housing market.
Earlier in the week, Housing Starts for September were UP 0.5% to an annual rate of 590,000 units. The consensus expected more, but the drag on the number all came from a drop in those volatile multi-unit starts. Single-family starts were up a strong 3.9%, their sixth gain in the last seven months and UP 40.3% since the January-February bottom. The rate of building is well below underlying demand, which some put at about 1.6 million units per year, based on population growth and the need for replacement because of fires, disasters and knock-downs.
The Mortgage Bankers Association reported that for 30-year fixed-rate mortgages, the average contract interest rate was 5.07% with 1.13 points (including the origination fee) for 80% loan-to-value ratio loans to borrowers with good credit. First time buyers have just five weeks to get in on these still great rates AND the $8,000 tax credit set to go away at the end of November.
Review of Last Week
CAN'T STAY ABOVE 10,000... It was a strange week in the stock markets, as the Dow shot past the "magic" 10,000 mark two days in a row, but a freaky Friday hammered that benchmark back down below 10,000. All three major indexes saw modest drops for the week. Some analysts said the seven-month rise in stock prices made us ready for a dive. Even analysts who are bullish long-term hinted we were due for a temporary pullback. We can be grateful these experts' wishes were fulfilled in such a modest way.
The negative yak was extra strange because Q3 corporate earnings continued to impress investors. We saw what some called "blowout results" from Apple and Amazon.com, while a long list of companies had very nice upside surprises -- outfits like American Express, AT&T, Capital One, Caterpillar, McDonald's, Texas Instruments, UPS and Yahoo! And let's not forget the strong single-family Housing Starts and very strong Existing Home Sales that show the housing recovery is moving along.
Initial Unemployment Claims inched up a bit last week, but Continuing Claims continue to fall, now down to 5.9 million. Gloomy pundits say this just shows people's unemployment benefits are expiring, but a few folks surely must be getting jobs to support the now recovering and growing economy! These pundits might want to consider Treasury Secretary Tim Geithner's prediction that we'll see "...positive growth in 2010 at a level that will begin to gradually bring down the unemployment rate."
For the week, the Dow ended down 0.2%, to 9972.18; the S&P 500 was down 0.7%, to 1079.60; while the Nasdaq fell just 0.1%, to 2154.47.
It was an up-and-down week in the bond market, which ultimately ended down. Friday, investors were anticipating this week's record auctions, which could squeeze prices some more. The FNMA 30-year 4.5% bond we watch fell again from the previous week's close, ending at $100.59. Still, mortgage rates stay in historically low territory.
This Week’s Forecast
HOUSING? GDP? INFLATION?... We'll have new answers to all three questions, beginning Wednesday with New Home Sales, then Thursday we get our initial look at GDP for Q3, the first quarter that's expected to show the economy expanding again. Friday we get numbers for PCE and Core PCE, which are the Fed's favorite inflation indicators.
The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
The week ended with the terrific news that Existing Home Sales shot UP 9.4% in September to a 5.57 million annual rate. This was almost twice the increase the consensus expected and a nice boost coming off the slight drop we saw in August. Best of all, the inventory is now down to a 7.8 month supply, getting us closer and closer to the 6-month level of a normal housing market.
Earlier in the week, Housing Starts for September were UP 0.5% to an annual rate of 590,000 units. The consensus expected more, but the drag on the number all came from a drop in those volatile multi-unit starts. Single-family starts were up a strong 3.9%, their sixth gain in the last seven months and UP 40.3% since the January-February bottom. The rate of building is well below underlying demand, which some put at about 1.6 million units per year, based on population growth and the need for replacement because of fires, disasters and knock-downs.
The Mortgage Bankers Association reported that for 30-year fixed-rate mortgages, the average contract interest rate was 5.07% with 1.13 points (including the origination fee) for 80% loan-to-value ratio loans to borrowers with good credit. First time buyers have just five weeks to get in on these still great rates AND the $8,000 tax credit set to go away at the end of November.
Review of Last Week
CAN'T STAY ABOVE 10,000... It was a strange week in the stock markets, as the Dow shot past the "magic" 10,000 mark two days in a row, but a freaky Friday hammered that benchmark back down below 10,000. All three major indexes saw modest drops for the week. Some analysts said the seven-month rise in stock prices made us ready for a dive. Even analysts who are bullish long-term hinted we were due for a temporary pullback. We can be grateful these experts' wishes were fulfilled in such a modest way.
The negative yak was extra strange because Q3 corporate earnings continued to impress investors. We saw what some called "blowout results" from Apple and Amazon.com, while a long list of companies had very nice upside surprises -- outfits like American Express, AT&T, Capital One, Caterpillar, McDonald's, Texas Instruments, UPS and Yahoo! And let's not forget the strong single-family Housing Starts and very strong Existing Home Sales that show the housing recovery is moving along.
Initial Unemployment Claims inched up a bit last week, but Continuing Claims continue to fall, now down to 5.9 million. Gloomy pundits say this just shows people's unemployment benefits are expiring, but a few folks surely must be getting jobs to support the now recovering and growing economy! These pundits might want to consider Treasury Secretary Tim Geithner's prediction that we'll see "...positive growth in 2010 at a level that will begin to gradually bring down the unemployment rate."
For the week, the Dow ended down 0.2%, to 9972.18; the S&P 500 was down 0.7%, to 1079.60; while the Nasdaq fell just 0.1%, to 2154.47.
It was an up-and-down week in the bond market, which ultimately ended down. Friday, investors were anticipating this week's record auctions, which could squeeze prices some more. The FNMA 30-year 4.5% bond we watch fell again from the previous week's close, ending at $100.59. Still, mortgage rates stay in historically low territory.
This Week’s Forecast
HOUSING? GDP? INFLATION?... We'll have new answers to all three questions, beginning Wednesday with New Home Sales, then Thursday we get our initial look at GDP for Q3, the first quarter that's expected to show the economy expanding again. Friday we get numbers for PCE and Core PCE, which are the Fed's favorite inflation indicators.
The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Home Sale Stats!
Existing home sales rose 9.4% in September to a seasonally adjusted annual rate of 5.57 million units from 5.1 million units in August. The increase was largely due to the tax incentive for first-time homebuyers.
According to the ICSC-Goldman Sachs index, retail sales rose 0.2% in the week ending October 17. On a year-over-year basis, retailers saw sales increase by 2.8%, the best showing in a year.
The producer price index, which tracks wholesale prices, rose 0.6% in September, following a 1.7% increase in August. For the year, wholesale prices are down 4.8%.
The Commerce Department reported that the combined construction of new single-family homes and apartments in September increased 0.5% to a seasonally adjusted annual rate of 590,000 units. That was less than the 610,000 economists had expected.
Initial claims for unemployment benefits rose by 11,000 to 531,000 in the week ending October 17. The figure was higher than the 515,000 that economists had forecast. The number of people continuing to claim jobless benefits in the week ending October 10 fell by 98,000 to 5.92 million.
The index of leading economic indicators — designed to forecast economic activity in the next three to six months — rose 1% in September after a revised 0.4% gain in August. It was the sixth straight monthly increase and marks the largest six-month gain in 26 years.
The National Association of Home Builders / Wells Fargo housing market index fell one point in October to 18. The decrease reflects the soon-to-expire tax credit for first-time homebuyers that boosted home sales earlier this year. An index reading below 50 indicates negative sentiment about the housing market.
Upcoming on the economic calendar are reports on consumer confidence on October 27, new home sales on October 28 and gross domestic product on October 29.
According to the ICSC-Goldman Sachs index, retail sales rose 0.2% in the week ending October 17. On a year-over-year basis, retailers saw sales increase by 2.8%, the best showing in a year.
The producer price index, which tracks wholesale prices, rose 0.6% in September, following a 1.7% increase in August. For the year, wholesale prices are down 4.8%.
The Commerce Department reported that the combined construction of new single-family homes and apartments in September increased 0.5% to a seasonally adjusted annual rate of 590,000 units. That was less than the 610,000 economists had expected.
Initial claims for unemployment benefits rose by 11,000 to 531,000 in the week ending October 17. The figure was higher than the 515,000 that economists had forecast. The number of people continuing to claim jobless benefits in the week ending October 10 fell by 98,000 to 5.92 million.
The index of leading economic indicators — designed to forecast economic activity in the next three to six months — rose 1% in September after a revised 0.4% gain in August. It was the sixth straight monthly increase and marks the largest six-month gain in 26 years.
The National Association of Home Builders / Wells Fargo housing market index fell one point in October to 18. The decrease reflects the soon-to-expire tax credit for first-time homebuyers that boosted home sales earlier this year. An index reading below 50 indicates negative sentiment about the housing market.
Upcoming on the economic calendar are reports on consumer confidence on October 27, new home sales on October 28 and gross domestic product on October 29.
Tuesday, October 20, 2009
Stolen Hotmail Passwords Demonstrate Need for Stronger Passwords
FINDING OUT THAT YOUR EMAIL OR ONLINE ACCOUNTS HAVE BEEN COMPROMISED IS ONE PRESSURE-FILLED SITUATION! SOME GREAT TIPS FOR CREATING STRONG PASSWORDS!
By now, you've probably heard that 30,000 passwords for Hotmail and Gmail accounts were stolen earlier this month
But did you know that a security group analyzed those passwords and found that the most commonly used password was 123456? If that wasn't bad enough, the second most common password that was used...yep, you guessed it...123456789.
In today's electronic environment, that's unbelievable. We no longer live in a world where we can use a simple string of numbers or a child's name as a password. They're just too easy to hack...and the results can be much more devastating than merely finding your emails made public.
The problem is that we all have so many passwords. So how do we make strong passwords that we can actually remember for every account?
The tips below can help you avoid the most common password pitfalls and even implement a few new ideas that will make your passwords easy to remember...and hard to break!
Don't Use a Password that's Easy to Guess
There's no way around it...a well-protected password is hard for other people to guess. How do you do that? It's pretty simple really. Just follow this advice:
Use a random string of characters. That means no sequential letters or numbers, like those Hotmail accounts that used 123456!
Make it looooong. The longer the better--even up to as many as 10 to 14 characters if space allows.
Switch things up. Use a combination of upper and lower case letters, along with a few numbers mixed in the middle or end.
Don't use substitute symbols in common words. Using "@" for "a" or "1" for "I" may look good to you, but most hackers are smart enough to break those substitutes rather quickly when the password consists of a common word.
For that matter, avoid easy targets like words straight out of the dictionary or things like family names and birthdays.
Don't Use the Same Password for All Accounts!
Most of us cheat when it comes to passwords. We have trouble remembering our passwords, so we come up with two or three that we can remember and use them everywhere.
But...you should avoid the temptation! That's because all of your accounts will be vulnerable if even one account is compromised. The reality is, you need to create and remember multiple passwords--a different one for each account! Fortunately, it's easier than you think. Just follow the steps below.
4 Simple Steps to Memorable, Yet Unique Passwords
Good passwords come down to two things: (1) they're easy for you to remember and (2) they're hard for others to break. Here's a sure-fire tip that can help you achieve both!
Think up a phrase. Instead of a common word or family member's name, think up a unique phrase that only you know. For example, you may think up something off the wall such as "I Like Short Hair Too."
Make it an acronym. In our example, "I Like Short Hair Too" would become ILSHT.
Add Complexity. Remember those substitutes you're not supposed to use with common dictionary words? Well, you CAN use them with your acronym. For example, "I Like Short Hair Too" can become "1 Like $hort Hair 2" which makes: 1L$H2. You can also use upper and lower letters to make it 1L$h2. The point is to be creative, but in a way that you can easily remember it.
Make it unique. A password is only really unique if you use it for one account and one account only. So you can't just use 1L$h2 for every account. And, in reality it's still too short. Here's the key to the whole process: Mix in additional letters and numbers that are unique to each account. For example, if you're logging into a "gmail account" you can use the "gm" and "@cct" (for acct) to make: 1L$h2gM@cct. Then, for a Netflix account, you may use: 1L$h2Nf@cct. That way, you're passwords will be hard for others to guess and unique to each account, but also easy for you to remember!
Of course, these are just examples. You'll want to be creative and think up your own acronym and ways to add unique characters for each account. And then keep that little secret to yourself so no one will be able to guess your account passwords.
Follow these simple steps and you'll have passwords that are tough to break, unique to every account, and easy to remember. And if you have children in your house who are starting to use passwords for email and IM accounts, teach them these steps to help educate them on the importance of strong passwords - they'll thank you later in life!
By now, you've probably heard that 30,000 passwords for Hotmail and Gmail accounts were stolen earlier this month
But did you know that a security group analyzed those passwords and found that the most commonly used password was 123456? If that wasn't bad enough, the second most common password that was used...yep, you guessed it...123456789.
In today's electronic environment, that's unbelievable. We no longer live in a world where we can use a simple string of numbers or a child's name as a password. They're just too easy to hack...and the results can be much more devastating than merely finding your emails made public.
The problem is that we all have so many passwords. So how do we make strong passwords that we can actually remember for every account?
The tips below can help you avoid the most common password pitfalls and even implement a few new ideas that will make your passwords easy to remember...and hard to break!
Don't Use a Password that's Easy to Guess
There's no way around it...a well-protected password is hard for other people to guess. How do you do that? It's pretty simple really. Just follow this advice:
Use a random string of characters. That means no sequential letters or numbers, like those Hotmail accounts that used 123456!
Make it looooong. The longer the better--even up to as many as 10 to 14 characters if space allows.
Switch things up. Use a combination of upper and lower case letters, along with a few numbers mixed in the middle or end.
Don't use substitute symbols in common words. Using "@" for "a" or "1" for "I" may look good to you, but most hackers are smart enough to break those substitutes rather quickly when the password consists of a common word.
For that matter, avoid easy targets like words straight out of the dictionary or things like family names and birthdays.
Don't Use the Same Password for All Accounts!
Most of us cheat when it comes to passwords. We have trouble remembering our passwords, so we come up with two or three that we can remember and use them everywhere.
But...you should avoid the temptation! That's because all of your accounts will be vulnerable if even one account is compromised. The reality is, you need to create and remember multiple passwords--a different one for each account! Fortunately, it's easier than you think. Just follow the steps below.
4 Simple Steps to Memorable, Yet Unique Passwords
Good passwords come down to two things: (1) they're easy for you to remember and (2) they're hard for others to break. Here's a sure-fire tip that can help you achieve both!
Think up a phrase. Instead of a common word or family member's name, think up a unique phrase that only you know. For example, you may think up something off the wall such as "I Like Short Hair Too."
Make it an acronym. In our example, "I Like Short Hair Too" would become ILSHT.
Add Complexity. Remember those substitutes you're not supposed to use with common dictionary words? Well, you CAN use them with your acronym. For example, "I Like Short Hair Too" can become "1 Like $hort Hair 2" which makes: 1L$H2. You can also use upper and lower letters to make it 1L$h2. The point is to be creative, but in a way that you can easily remember it.
Make it unique. A password is only really unique if you use it for one account and one account only. So you can't just use 1L$h2 for every account. And, in reality it's still too short. Here's the key to the whole process: Mix in additional letters and numbers that are unique to each account. For example, if you're logging into a "gmail account" you can use the "gm" and "@cct" (for acct) to make: 1L$h2gM@cct. Then, for a Netflix account, you may use: 1L$h2Nf@cct. That way, you're passwords will be hard for others to guess and unique to each account, but also easy for you to remember!
Of course, these are just examples. You'll want to be creative and think up your own acronym and ways to add unique characters for each account. And then keep that little secret to yourself so no one will be able to guess your account passwords.
Follow these simple steps and you'll have passwords that are tough to break, unique to every account, and easy to remember. And if you have children in your house who are starting to use passwords for email and IM accounts, teach them these steps to help educate them on the importance of strong passwords - they'll thank you later in life!
Higher CPI!
"THE HEAT IS ON." Glenn Frey. While cooler temperatures are beginning to descend on many parts of the country, Bonds and home loan rates are feeling the heat and pressure from several fronts. Here are some details...along with why it's important to act soon to take advantage of current home loan rates, as they may never be seen again.
Last week, the Core Consumer Price Index (CPI) was reported higher than expected, indicating that inflationary forces may already be underway. Remember, inflation erodes the value of the fixed return that a Bond provides - therefore, inflation is harmful to Bonds and home loan rates. Just the hint of inflation can cause home loan rates to worsen, which is what we saw last week.
And here's a very interesting and important note - when looking at these CPI numbers, it is important to understand the effect that the "Cash for Clunkers" program had on this index. The Cash for Clunkers program was very "creatively" accounted for as a reduction in the sales price of automobiles, which had to have a dramatic effect on lowering the CPI that was reported. Imagine how much higher CPI would have been had this "creativity" not been used. As even more inflationary fears creep into the economy, home loan rates will continue to rise.
Also adding pressure to Bonds and home loan rates is the Fed's plan to ration out their remaining purchases of Mortgage Backed Securities. The Fed has purchased around $950B year-to-date out of the $1.25T allotted for the program, which is now set to expire March 31, 2010. This means the Fed will be averaging about $14B a week in purchases, a lot less than $25B or so they had been doing up until recently. And anytime demand for an item slows down...including Mortgage Backed Securities...the price goes down. And in this case, it means that home loan rates will move higher.
The bottom line is that the heat is on...and home loan rates are starting to rise already. While home loan rates are still incredibly low, it is clear this won't last much longer - and we may not see rates at these levels again in our lifetimes. Give me a call if you want to discuss your own situation, or if you have a friend, family member, neighbor or coworker who might benefit from some information.
In other news, Retail Sales for September fell by 1.5% - and while the numbers were better than expected, they are still dismal at best. In addition, the flood of pre-holiday sales and layaway options that are already hitting - remember, it's still mid-October - also suggests a lack of pricing power for retailers. Stock earnings season continued with some mixed news: There were reasonably strong earnings reports from Intel and JPMorgan Chase, while there were weaker than expected reports from Johnson & Johnson, General Electric and IBM. Bank of America also posted its first loss for the year.
After all the week's heat and pressure, Bonds and home loan rates ended the week slightly worse than where they began.
More inflation news is ahead this week, with Tuesday's Producer Price Index (PPI) Report, which measures inflation at the wholesale level. Also this week, we'll get a double dose of housing news, first with Tuesday's Housing Starts and Building Permits Report and second with Friday's Existing Home Sales numbers for September. Some of the numbers have been looking better in recent months, as buyers move quickly to take advantage of the combination of low home loan rates, discounted home prices, and for first time home buyers, a juicy tax credit that is set to expire soon.
Given the state of the job market, Thursday's Initial Jobless Claims Report continues to be an important report to watch. Last week's Jobless Claims fell by 10,000 to 514,000 - and while this was lower than the 520,000 that was expected, it was still an enormous number of people applying for unemployment benefits, which highlights a weak labor market. Also, earnings season continues for Stocks, which could have a big impact on both Stocks and Bonds. The Dow had cracked the psychologically tough level of 10,000...but was unable to hold its ground, and was pressured back lower.
Remember: Weak or negative economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong or positive economic news normally has the opposite result.
As you can see in the chart below, Bond prices moved lower last week, meaning home loan rates moved higher. As discussed above - home loan rates are headed higher and are unlikely to return to similar levels anytime soon...and perhaps they never will again. Don't miss your opportunity to improve your own home loan situation, or make a suggestion to someone you know that might be in need of some solid advice.
Last week, the Core Consumer Price Index (CPI) was reported higher than expected, indicating that inflationary forces may already be underway. Remember, inflation erodes the value of the fixed return that a Bond provides - therefore, inflation is harmful to Bonds and home loan rates. Just the hint of inflation can cause home loan rates to worsen, which is what we saw last week.
And here's a very interesting and important note - when looking at these CPI numbers, it is important to understand the effect that the "Cash for Clunkers" program had on this index. The Cash for Clunkers program was very "creatively" accounted for as a reduction in the sales price of automobiles, which had to have a dramatic effect on lowering the CPI that was reported. Imagine how much higher CPI would have been had this "creativity" not been used. As even more inflationary fears creep into the economy, home loan rates will continue to rise.
Also adding pressure to Bonds and home loan rates is the Fed's plan to ration out their remaining purchases of Mortgage Backed Securities. The Fed has purchased around $950B year-to-date out of the $1.25T allotted for the program, which is now set to expire March 31, 2010. This means the Fed will be averaging about $14B a week in purchases, a lot less than $25B or so they had been doing up until recently. And anytime demand for an item slows down...including Mortgage Backed Securities...the price goes down. And in this case, it means that home loan rates will move higher.
The bottom line is that the heat is on...and home loan rates are starting to rise already. While home loan rates are still incredibly low, it is clear this won't last much longer - and we may not see rates at these levels again in our lifetimes. Give me a call if you want to discuss your own situation, or if you have a friend, family member, neighbor or coworker who might benefit from some information.
In other news, Retail Sales for September fell by 1.5% - and while the numbers were better than expected, they are still dismal at best. In addition, the flood of pre-holiday sales and layaway options that are already hitting - remember, it's still mid-October - also suggests a lack of pricing power for retailers. Stock earnings season continued with some mixed news: There were reasonably strong earnings reports from Intel and JPMorgan Chase, while there were weaker than expected reports from Johnson & Johnson, General Electric and IBM. Bank of America also posted its first loss for the year.
After all the week's heat and pressure, Bonds and home loan rates ended the week slightly worse than where they began.
More inflation news is ahead this week, with Tuesday's Producer Price Index (PPI) Report, which measures inflation at the wholesale level. Also this week, we'll get a double dose of housing news, first with Tuesday's Housing Starts and Building Permits Report and second with Friday's Existing Home Sales numbers for September. Some of the numbers have been looking better in recent months, as buyers move quickly to take advantage of the combination of low home loan rates, discounted home prices, and for first time home buyers, a juicy tax credit that is set to expire soon.
Given the state of the job market, Thursday's Initial Jobless Claims Report continues to be an important report to watch. Last week's Jobless Claims fell by 10,000 to 514,000 - and while this was lower than the 520,000 that was expected, it was still an enormous number of people applying for unemployment benefits, which highlights a weak labor market. Also, earnings season continues for Stocks, which could have a big impact on both Stocks and Bonds. The Dow had cracked the psychologically tough level of 10,000...but was unable to hold its ground, and was pressured back lower.
Remember: Weak or negative economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong or positive economic news normally has the opposite result.
As you can see in the chart below, Bond prices moved lower last week, meaning home loan rates moved higher. As discussed above - home loan rates are headed higher and are unlikely to return to similar levels anytime soon...and perhaps they never will again. Don't miss your opportunity to improve your own home loan situation, or make a suggestion to someone you know that might be in need of some solid advice.
For the week of October 19, 2009
INFO THAT HITS US WHERE WE LIVE
For the third week in a row, rates on 30-year fixed-rate mortgages remained below 5% in Freddie Mac's Primary Mortgage Market Survey. The average for conforming mortgages was 4.92% with an average of 0.7 point (including the origination fee) for 80% loan-to-value ratio loans to borrowers with good credit.
The Mortgage Bankers Association reported applications down 1.8% for the week, although re-financings were up, as more people took advantage of historically low mortgage rates. The MBA also projected double-digit growth for home sales next year. They see 2010 existing home sales up 11.2% to 5.57 million and new home sales up a healthy 21% from 2009 levels. Another encouraging stat came from the National Association of Realtors which reported 3.6 million existing homes for sale at the end of August, nicely down from 4.3 million 12 months ago.
First time buyers may still be able to get the $8,000 tax credit expiring at the end of November. That's six weeks away, which is not a lot of time, but not impossible. Fence-sitters should get pre-qualified now.
Review of Last Week
FLIRTING WITH 10,000... Investors focused on corporate earnings saw enough encouraging signs to push the Dow past 10,000 on Wednesday. It was last at that magical mark on October 7 a year ago. The market closed above 10,000 again on Thursday, but Friday was a different story. GE and IBM reported quarterly results that were less than expected and University of Michigan Consumer Sentiment fell 3.9 points, after a 7.8 point rise in September, so the week ended below 10,000, but still with an overall gain.
But don't fret over consumers -- they're clearly showing up at the stores. Retail sales for September fell just 1.5%, way less than expected after the end of the Cash for Clunkers program. In fact, "core" retail sales (take out autos, building materials and gas) were UP 0.5% and are UP three of the last four months. Ignore the pundits -- consumers ARE participating in this recovery. Other good indicators included the Empire State Manufacturing Index rising to its highest level in over five years and initial unemployment claims falling to 514,000, their lowest level since the start of the year.
But the best news for investors was on the earnings front, with JPMorgan Chase, Goldman Sachs and Citigroup all beating estimates. Tech darling Google blew everyone away with earnings of almost $6 a share and an optimistic economic outlook. The week ended with Treasury Secretary Tim Geithner telling CNBC: "... you're going to see the economy growing at a significant rate...the rest of this year. [And] Positive growth in 2010 at a level that will begin to gradually bring down the unemployment rate."
For the week, the Dow ended UP 1.3%, to 9995.91; the S&P 500 was UP 1.5%, to 1087.68; while the Nasdaq rose 0.8%, to 2156.60.
The bond market saw prices under pressure in the shortened week. This included the FNMA 30-year 4.5% bond we watch, which dropped a tad from the previous week's $100.91 close, ending at $100.72. But, as reported above, mortgage rates stayed low, keeping us in "the golden age of mortgage rates", as one observer described it.
This Week’s Forecast
HOME SWEET HOMES... This week is full of news on the subject we love most. Tuesday we get Housing Starts and Building Permits for September, Friday delivers Existing Home Sales. For a gauge of the broader economy, the PPI looks at producer prices, while the LEI consolidates a group of indicators. We will all keep watching Initial and Continuing Unemployment numbers as we wait for Secretary Geithner's prediction to come true.
Corporate earnings will stay big in the picture as 12 companies who are part of the Dow Jones Industrial Average share Q3 results.
The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
For the third week in a row, rates on 30-year fixed-rate mortgages remained below 5% in Freddie Mac's Primary Mortgage Market Survey. The average for conforming mortgages was 4.92% with an average of 0.7 point (including the origination fee) for 80% loan-to-value ratio loans to borrowers with good credit.
The Mortgage Bankers Association reported applications down 1.8% for the week, although re-financings were up, as more people took advantage of historically low mortgage rates. The MBA also projected double-digit growth for home sales next year. They see 2010 existing home sales up 11.2% to 5.57 million and new home sales up a healthy 21% from 2009 levels. Another encouraging stat came from the National Association of Realtors which reported 3.6 million existing homes for sale at the end of August, nicely down from 4.3 million 12 months ago.
First time buyers may still be able to get the $8,000 tax credit expiring at the end of November. That's six weeks away, which is not a lot of time, but not impossible. Fence-sitters should get pre-qualified now.
Review of Last Week
FLIRTING WITH 10,000... Investors focused on corporate earnings saw enough encouraging signs to push the Dow past 10,000 on Wednesday. It was last at that magical mark on October 7 a year ago. The market closed above 10,000 again on Thursday, but Friday was a different story. GE and IBM reported quarterly results that were less than expected and University of Michigan Consumer Sentiment fell 3.9 points, after a 7.8 point rise in September, so the week ended below 10,000, but still with an overall gain.
But don't fret over consumers -- they're clearly showing up at the stores. Retail sales for September fell just 1.5%, way less than expected after the end of the Cash for Clunkers program. In fact, "core" retail sales (take out autos, building materials and gas) were UP 0.5% and are UP three of the last four months. Ignore the pundits -- consumers ARE participating in this recovery. Other good indicators included the Empire State Manufacturing Index rising to its highest level in over five years and initial unemployment claims falling to 514,000, their lowest level since the start of the year.
But the best news for investors was on the earnings front, with JPMorgan Chase, Goldman Sachs and Citigroup all beating estimates. Tech darling Google blew everyone away with earnings of almost $6 a share and an optimistic economic outlook. The week ended with Treasury Secretary Tim Geithner telling CNBC: "... you're going to see the economy growing at a significant rate...the rest of this year. [And] Positive growth in 2010 at a level that will begin to gradually bring down the unemployment rate."
For the week, the Dow ended UP 1.3%, to 9995.91; the S&P 500 was UP 1.5%, to 1087.68; while the Nasdaq rose 0.8%, to 2156.60.
The bond market saw prices under pressure in the shortened week. This included the FNMA 30-year 4.5% bond we watch, which dropped a tad from the previous week's $100.91 close, ending at $100.72. But, as reported above, mortgage rates stayed low, keeping us in "the golden age of mortgage rates", as one observer described it.
This Week’s Forecast
HOME SWEET HOMES... This week is full of news on the subject we love most. Tuesday we get Housing Starts and Building Permits for September, Friday delivers Existing Home Sales. For a gauge of the broader economy, the PPI looks at producer prices, while the LEI consolidates a group of indicators. We will all keep watching Initial and Continuing Unemployment numbers as we wait for Secretary Geithner's prediction to come true.
Corporate earnings will stay big in the picture as 12 companies who are part of the Dow Jones Industrial Average share Q3 results.
The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
LISTEN TO WHAT THE MAN SAID
"LISTEN TO WHAT THE MAN SAID." And those aren't just the words from Paul McCartney's hit song of the same title...they're also words of advice for anyone who's considering buying a home or refinancing. Last week, Federal Reserve Chairman Ben Bernanke said that as the economy heals, the Fed will be very vigilant to protect against inflation. While inflation is not a problem at present...it will most certainly become a problem down the road. So why does this matter if you are considering purchasing or refinancing? Because inflation is the arch-enemy of Bonds and home loan rates, and just the knowledge of it coming has been causing both Bonds and home loan rates to worsen in recent days. Along with the fear of inflation, the Fed's purchasing program of Mortgage Backed Securities is already slowing down, with the end of their buying in sight - and the reduced demand for these Bonds is also driving home loan rates higher.
Bottom line: home loan rates are already on the rise, and we won't likely see these low historic levels again.
Interest rates are still very near historic lows - George Washington couldn't have gotten a better interest rate - and the opportunity these low rates present is huge for homebuyers or people looking to refinance. If we haven't talked recently about your own home loan situation - or if you have a friend, family member, neighbor or coworker who needs advice - please call or send me an email. There's no time to waste.
Bottom line: home loan rates are already on the rise, and we won't likely see these low historic levels again.
Interest rates are still very near historic lows - George Washington couldn't have gotten a better interest rate - and the opportunity these low rates present is huge for homebuyers or people looking to refinance. If we haven't talked recently about your own home loan situation - or if you have a friend, family member, neighbor or coworker who needs advice - please call or send me an email. There's no time to waste.
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