Monday, May 12, 2014

Mortgage Rates Dip


  Hard to believe....but downturn in stock market and bonds pushed home loan rates down. I know many, including me, saw all the news and the logic of rates rising.  But for now, you can get a 4% mortgage loan.

So buy or refinance NOW!  

I don't honestly believe these rates will last long!






Provided to you Exclusively by Jim Belote  
For the week of May 12, 2014 | Vol. 12, Issue 19
Jim Belote
Jim Belote
Branch Manager, MBA
Union Mortgage Group
Phone: (757) 395-LOAN
Fax: (757) 351-6471
E-Mail: jim@jimbelote.com
Union Mortgage Group
582 Lynnhaven Parkway, Suite 300
Virginia Beach, VA 23452
In This Issue...
Last Week in Review: Home loan rates reached their best levels of 2014. Find out why!

Forecast for the Week: A busy week is ahead, with important reports on housing, inflation and manufacturing.

View: Here's an easy explanation for why bad economic news can be good for home loan rates.
Last Week in Review
"I knew the record would stand until it was broken." Yogi Berra. Last week, Mortgage Bonds hit their highest levels in 2014, helping home loan rates reach some of their lowest levels this year. Read on for details.
One of the main reasons Bonds and home loan rates have benefitted of late is due to a safe haven trade. What does this mean?

When there is uncertainty in the world, like the current situation with Russia and the Ukraine, investors often move their money out of Stocks and into less risky assets like Bonds. This includes Mortgage Bonds, the type of Bond on which home loan rates are based. As tensions have escalated overseas in recent weeks, our Bond markets have benefitted—and as Mortgage Bonds improve, so do home loan rates.

Another factor helping Bonds right now is the old trading scenario, "sell in May and go away." Stock prices have been declining, helping Mortgage Bonds improve. For even more details on the dynamic between Stocks and Bonds, see the View article below.

In housing news, research firm CoreLogic reported that home prices, including distressed sales, rose by 11.13 percent from March 2013 to March 2014. In addition, prices were up 1.4 percent from February to March. The 11.13 percent year-over-year increase is down from the 11.81percent registered in the year ended in February. Given the tighter credit standards and limited inventory that exists in many parts of the country, it seems likely that the big home price gains seen in 2014 will not be sustained. This will be important to watch as we move further ahead this year, as the strength of the housing recovery is a key factor of our economic recovery overall.

The bottom line is that now remains a great time to consider a home purchase or refinance. Home loan rates remain attractive compared to historical levels, and they're at the best levels seen this year. Let me know if I can answer any questions at all for you or your clients.
Forecast for the Week
After last week's quiet economic calendar, this week brings key reports across a wide spectrum of the economy.
  • Economic reports begin on Tuesday with Retail Sales, which will give us a read on consumer spending for April.
  • Look for a double dose of inflation data, with the wholesale-measuring Producer Price Index on Wednesday and the Consumer Price Index on Thursday.
  • Also on Thursday, weekly Initial Jobless Claims will be delivered as usual.
  • Two key manufacturing reports are on tap for Thursday, with May's readings of the Empire State Index and Philadelphia Fed Index.
  • Thursday brings housing news as well via the National Association of Home Builder's Housing Market Index. More housing news follows Friday with Housing Starts and Building Permits.
  • Ending the week, the Consumer Sentiment Index will also be reported Friday.
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. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.

When you see these Bond prices moving higher, it means home loan rates are improving—and when they are moving lower, home loan rates are getting worse.

To go one step further—a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Bonds and home loan rates reached some of their best levels this year. I'll be watching closely to see if this trend continues.
Chart: Fannie Mae 4.0% Mortgage Bond (Friday May 09, 2014)
Japanese Candlestick Chart


The Mortgage Market Guide View...
Why Bad News Can Be Good for Home Loan Rates

It's counterintuitive that negative economic news can actually be good for home loan rates, but there's a pretty simple explanation, and once you "get it" it makes perfect sense.

First, remember that big money managers in search of higher returns avoid holding onto cash by investing in both Stocks and Bonds.

Second, despite what the financial media often reports, home loan rates are based on the performance of Mortgage Backed Securities—a type of Bond.

Putting these two facts together, it begins to make sense that when the economy is "on fire" and economic reports are on the uptrend, investors tend to put more money into Stocks. That's because Stocks offer higher returns, even though they are generally more risky.

However, in order to put money into Stocks, investors must remove some of their money from less-risky Bonds. The result is a decreased demand in Bonds causing Bond prices to worsen, and therefore home loan rates to go higher.

On the other hand, when the economy is sluggish and economic reports are negative, money managers tend to take money out of higher-risk Stocks and move it into less-volatile Bonds. As demand for Bonds increase, Bond pricing improves and home loan rates go down.

While it may seem odd that home loan rates improve when economic news is sluggish, it actually makes sense when you look at the bigger picture!

Feel free to pass this info along to your team, clients and colleagues. If you have any questions about how economic news is impacting home loan rates right now, please call or email any time.




Economic Calendar for the Week of May 12 - May 16
Date
ET
Economic Report
For
Estimate
Actual
Prior
Impact
Tue. May 13
08:30
Retail Sales
Apr
NA

1.2%
HIGH
Tue. May 13
08:30
Retail Sales ex-auto
Apr
NA

0.7%
HIGH
Wed. May 14
08:30
Producer Price Index (PPI)
Apr
NA

0.5%
Moderate
Wed. May 14
08:30
Core Producer Price Index (PPI)
Apr
NA

0.2%
Moderate
Thu. May 15
10:00
Philadelphia Fed Index
May
NA

16.6
HIGH
Thu. May 15
08:30
Empire State Index
May
NA

1.3
Moderate
Thu. May 15
08:30
Core Consumer Price Index (CPI)
Apr
NA

0.2%
HIGH
Thu. May 15
08:30
Consumer Price Index (CPI)
Apr
NA

0.2%
HIGH
Thu. May 15
08:30
Jobless Claims (Initial)
5/10
NA

319K
Moderate
Thu. May 15
10:00
Housing Market Index
May
NA

47
Moderate
Fri. May 16
08:30
Housing Starts
Apr
NA

946K
Moderate
Fri. May 16
08:30
Building Permits
Apr
NA

990K
Moderate
Fri. May 16
10:00
Consumer Sentiment Index (UoM)
May
NA

84.1
Moderate

The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors.

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