Fed leaves rates unchanged and sticks to $600 billion bond buy.

Paul R. Spenard
Mortgage Planning Specialist

(410) 668-7077 - PHONE
(443) 219-0700 - FAX

Sent via Blackberry

Key Factors Impacting the Housing Market

FALLING HOME PRICES

Home prices fell 2% in the 3Q following a modest gain in 2009. Home prices are down 1.5% year over year and off 2% compared to the second quarter, according to the S&P Case-Shiller Home Price Index.

RISING HOMES-FOR-SALE INVENTORY

The inventory of homes for sale is high with nearly 3.9 million on the market in October, according to the National Association of Realtors.

Additionally, there is an enormous shadow inventory of home in the wings. It is believed that much of the shadow inventory is due fraudulent mortgage documents so this inventory will only shrink as the documentation issues are resolved.

In the meantime, the inventory looms over the housing market and buyers back away from REO properties that may be 'hung up' in the documentation mess causing delays in or prevent closing.

It is believed that much of the shadow inventory is due fraudulent mortgage documents so this inventory will only shrink as the documentation issues are resolved.

THE FORECLOSURE MESS

The once hot foreclosed homes market has been hit hard as the big banks sputter in restarting the foreclosure process on the delinquent mortgages they hold. This is slowing the sale of shadow inventories and will exert downward pleasure on housing prices until the inventory is depleted.
It is believed that much of the shadow inventory is due fraudulent mortgage documents so this inventory will only shrink as the documentation issues are resolved.

UNDERAPPRAISED VALUES

Since the HVCC was passed the home appraisal process has come under increasing fire. Now that it has been placed under Consumer Protection tension has increased for two reasons: 1) many appraisers are 'low balling' values to cover their behinds, and;
2) other players in the home sales process like Real Estate and Mortgage professionals are kept out of the loop or able to discuss values and comps with the appraiser. Thus, the appraisal can be a deal breaker.

RISING MORTGAGE RATES

Mortgage rates are on the move, at six-month high, threaten purchase, refis and even the Fed. The Fed does not have room to lower rates and their monetary policy is putting upward pressure on rate.

RELUNCTANCE TO MOVE OR SELL

CoreLogic: 10.8 million US properties with negative equity in Q3. This presents a challenge for homeowners who would otherwise sell their homes and relocate for employment or other personal reasons.

Paul R. Spenard
Mortgage Planning Specialist

(410) 668-7077 - PHONE
(443) 219-0700 - FAX

Sent via Blackberry

Attracting What You Want

Here's a simple and effective way to attract what you want when you want, and it's not just about the Law of Attraction. 

Change Your Energy 

To attract what you want change or shift your energy. Everything in this world is made up of energy including us.

Other people pick up on your energy. If you have positive energy you'll attract positive people and positive situations into your life. If you have negative energy, you'll attract negative people and negative situations into your life. If you're not getting what you want then there's avery good chance that you're simply sending out the wrong energy. You'll attract what corresponds to your energy.

Negative energy attracts negative situations. Positive energy attracts positive situations. It's really that simple. So if you're not getting what you want, you're likely sending out the wrong energy. Change your energy and you'll start getting what you want.

Just what is your energy? 

Your energy is based on your thoughts and beliefs. Your subconscious mind picks up on your thoughts and beliefs. It then goes out and creates situations that correspond to your thoughts and beliefs (your energy). Other people pick up your energy on a subconscious level. They're not consciously aware of your energy but they just develop a feeling about you based on your energy. If you have negative energy you'll attract negative people and negative situations. At the same time you'll repel positive people and positive situations.

This is not a good combination if you want to create a positive and successful life. If you constantly think of the worst, if you find that you're regularly negative, if you don't believe that you can ever achieve anything, if you don't believe that anybody can be good, if you constantly complain, if you always see the worst in situations, if you regularly put others down, if you're just a negative person you will develop negative energy and in the end you'll only attract more negative situations into your life. 

These kinds of situations or negative energy will only make your life miserable and in the end it will be even more difficult for you to achieve your goals and create the changes that you want. At the same time you'll push away positive people and positive situations.

So by being negative and having negative energy things will continue to get worse. Being negative is really a no win situation and you should do everything that you can to stop being negative and eliminate any negative energy that you have. Change the way you see things and begin eliminating the negative thoughts and negative beliefs. This will change your energy so that you begin attracting what you want. Start changing how you think. Create positive thoughts and positive beliefs. Focus on finding solutions and you'll begin attracting more positive situations into your life.

Weekly Market Preview

This Week; interest rate markets will start at their highest yields since the huge sell-off began three weeks ago.

Last week there was no real economic measurements, this week the economic calendar has a number of data points that will get close attention; two inflation gauges (PPI and CPI), two regional Fed economic indexes (NY and Philadelphia Fed indexes), housing starts and permits for Nov (both expected to be stronger).

The elephant however is the FOMC meeting on Tuesday; the statement will be critical after the recent increase in rates, will the FOMC try to jaw bone the rate markets to slow the climb?
 
Interest rates, after all the recent hand wringing on the quick jumps in rates, are still historically low as we have reminded more than a few times. Everyone should try and keep the increase in rates in some wider perspective.

Interest rates were destined to increase, it was not logical that rates could stay as low as they were prior to Nov 4th when rates started their ascent.  Rates are increasing across the globe as the economic outlook improves.

China is helping add inflation concerns in the US bond markets; its rate is at 6.0% with increasing talk China may raise their rates. Here in the US the Fed has made it very clear it wants the US inflation rate higher, mix in the expanding US deficits and there are plenty of solid reasons why interest rates have increased.

How much higher? Likely they will continue to increase but not at the swift pace we have now. The bond market this week should do somewhat better as long as it gets a positive trigger from the economic releases.

Economic Highlights for the Week Ending December 10, 2010

MONDAY, December 6th

Treasury prices headed higher, subsequently lowering yields in the bond market today in response to Ben Bernanke's 60-Minutes interview that aired over the weekend. The Fed Chairman said that the central bank could increase QE2 beyond the announced $600 billion limit if necessary. He assessed the economic recovery at this time to be barely self-sustaining and that persistently high unemployment remains a threat. Bernanke said it could take 4 or 5 years to reduce unemployment by half the current 9.8% rate. The 10-year note was up in afternoon trading, as its yield fell to 2.95% from 3.00% late Friday.

TUESDAY, December 7th

Consumer credit increased by $3.3 billion in October compared to expectations for a $1.0 billion decline. Revolving debt balances like credit cards fell by a sharp $5.6 billion as lenders continued to write-off bad debts. Over the past year, revolving debt has fallen by an average of $7.1 billion a month and is expected to continue trending lower in the months ahead. Non-revolving credit categories like car loans increased by $9.0 billion in October after surging $10 billion in September as consumers purchased new vehicles due to better credit availability. Consumer credit usage remains dependent on reliable job growth.

Extension of the Bush tax cuts by the Obama administration and congressional Republicans today improved the economic outlook. The proposed tax cuts will provide a substantial boost to growth in 2011 and virtually eliminate the potential for the economy to slip back into recession. Economists project the economy to grow at a 4.0% rate next year with job creation of 2.8 million. It also greatly reduces the chance the Fed would have to employ additional easing measures. Yields were sharply higher across the maturity spectrum with the benchmark 10-year note yield up 21 basis points to finish at 3.13%.

WEDNESDAY, December 8th

The MBA mortgage applications index fell 0.9% to 603.5% for the week ending December 3. In a reversal of recent trends the purchase index increased in six of the last seven weeks gaining 1.8% last week but still down 12.7% on the year. The refinance index fell for the fourth straight week, down 1.4% and now 8.0% lower than last year.

THURSDAY, December 9th

Long-term fixed mortgage rates rose again this week and are now nearly 50 basis points higher than the record low set in mid-November. Investors fled the bond market this week as progress was made in the European debt crisis and as the outlook improved for the U.S economy. Yields rose and mortgage rates followed suit as the 30-year fixed rate rose to 4.61% from 4.46% in the prior week according to Freddie Mac's mortgage market survey.

Jobless claims dropped 17k to 421k for the week ending December 4. Initial claims for unemployment are trending irregularly lower and are now maintaining well below the 450k level. Claims remain elevated indicating still sluggish hiring conditions however; claims are headed lower showing some progress is being made in the labor market.

FRIDAY, December 10th

The international trade deficit on goods and services decreased to $38.7 billion in October from a trade gap of $44.6 billion in September. The shortfall was due to stronger exports while imports declined. Net exports subtracted 1.75 percentage points from Q3 GDP; October trade data suggests net exports will add positively to Q4 economic growth.

Consumer sentiment increased to 74.2% in early December from 71.6% in November. Consumers' ratings of both current conditions and expectations increased this month. Sentiment is up sharply in the past two months indicating perhaps, a turn toward optimism.

The federal government ran a $150.4 billion budget deficit in November compared to a $120.3 billion deficit in November 2009. Calendar effects on outlays are the reason for the year-over-year deterioration in the budget. Fiscal year-to-date the cumulative budget deficit is running at $290.8 billion vs. a $296.7 billion deficit for the same period last year. After improving somewhat last year the CBO projects the 2011 budget deficit to be on par with the record 1.4 trillion deficit of 2009.

WEEK IN ADVANCE

Very little economic data is due out in the coming week so there may be some carry-over of the disappointing jobs report today. Actions by the lame duck Congress will be watched keenly as the Treasury sets to auction another $66 billion in notes and bonds. Interest rates may fall under downbeat data, policy and supply concerns.

Economic Highlights for the Week Ending December 3, 2010

MONDAY, November 29th

Along with a full slate of economic releases this week, the lame duck Congress reconvenes for their final session. Many weighty issues have been left for decisions during this time including the Bush tax cuts, set to expire January 1 and extension of unemployment benefits for nearly 2 million workers. Some form of relief is likely in both cases. Funding the budget and more importantly, reducing the deficit are also on the agenda. A stronger economy will help broaden the tax base and naturally reduce the need for federal spending. Additionally, deficit reduction will require sacrifices in the form of higher taxes and deep spending cuts in many programs that could impact many Americans.

TUESDAY, November 30th

The S&P/Case-Shiller 20-city home price index fell 0.8% in September the third straight monthly decline. Home prices are now only 0.6% above their year ago level. As recently as May, home prices were up 4.7% year over year. Sharply lower home price gains in the past four months is reflective of soft existing home sales during the period combined with a high percentage of distressed sales. Larger home price declines can be expected going forward as foreclosure inventories work through the market next year.

The consumer confidence index increased to 54.1% in November from a level of 49.9% in October. The gain was led by a higher expectation score though present situation ratings were up slightly as well. Nevertheless, confidence remains mired in recessionary territory as consumers wait for stronger job creation and faster growth.

WEDNESDAY, December 1st

The MBA mortgage applications index dropped 16.5% to 608.8% for the week ending November 26. The purchase index increased 1.1% on the week as the refinance index plunged 21.6%. The refinance index is trending sharply lower over the past several weeks while it appears that purchase activity may finally be recovering from its post-tax credit correction. Currently rates remain near historic lows and credit markets continue to thaw which should encourage homeowners to refinance. Home sales and purchase activity remain dependent on a substantial turnaround in job and income growth.
The ISM manufacturing index slipped to 56.6 in November from 56.9 in October. Manufacturing activity nationwide is holding up well; the level of the index indicates continued expansion in manufacturing activity nationwide with mild expansion in the broader economy.
Motor vehicle sales maintained an elevated 12.3 million unit annual pace in November, matching the highest sales level since September 2008, with the exception of the cash-for-clunkers program in August 2009. Despite the improvement, vehicle sales remain well below their longer running average of 16 million units per year. Sales are not expected to return to that pace for another year or two.

The Fed's beige book summary of economic conditions in their 12 banking districts during October and early November showed that the economy continued to improve on balance in most all areas of the country. Consumer spending, manufacturing and jobs growth were slightly stronger while inflation and wage pressures remained subdued. The housing market and commercial construction remained the weak spots. The report, compiled in preparation for the December 14 FOMC meeting, indicates the fed funds rate will be maintained close to zero for an extended period.

THURSDAY, December 2nd

Jobless claims jumped by 26k to 436k for the week ending November 27. Even with the gain, initial claims are trending lower and maintaining a range below 450k suggesting the pace of layoffs has slowed again. Other data from the labor market however suggests the pace of hiring has yet to pick up in earnest.

The pending home sales index rose 10.4% in October to 89.3%. The rise in the index over the last few months could result in stronger existing home sales in November and December. However, any improvement in home sales will be from a very low level.

FRIDAY, December 3rd

Payroll employment grew by 39,000 in November much less than an expected job gain of 145,000. The government shed 11k jobs while private sector jobs rose by 50k. Upward revisions in the prior two months resulted in a net gain of 38k additional jobs which provided some offset to weaker-than-expected private sector job growth. So far this year the private sector has created 1.171 million jobs; employment is still 7.412 million below its December 2007 peak level. Separately, the unemployment rate rose to 9.8% last month from 9.6% in October.