FED does it again

A very interesting "Mortgage Matters.." this week from Jim Belote.
The FED is pumping in even more money(millions) into purchasing treasury notes and mortgage backed securities with newly printed money.  Yes, newly printed money...making your dollars worth less..possibly, as noted below, pushing inflation higher.  I have to be honest the noted 2% inflation planned for next year pushed 2.5% due to FED action is nothing to lose sleep over.  BUT the long term affect of 'loose money' policy can be steep devaluation of dollar(translated:  INFLATION).

You will note below that the FED's effort was to reduce mortgage rates to continue the housing recovering.  Yet bonds yeilds went up rather than down thus not helping lower mortgage rates.  Though not tied directly tied to these bonds, mortgage rates do track along bond yields due to investor interest in both.

Still the best time to buy a home with home prices trending up and rates still low....don't miss out.  2013 could be a barnburner!

Keeping you updated on the market! For the week of  December 17, 2012 MARKET RECAP Housing has been subdued the past couple weeks and will likely remain subdued through the remainder of the year. The good news is what's been reported on housing has been mostly positive. The trend continues this week. The Mortgage Bankers Association reports that purchase applications continue to trend higher, rising 1.0% in the December 7 week. This marks the fifth-consecutive volume increase and is a positive indicator for home sales as we head into the new year. News on the mortgage market has picked up where housing has left off. Federal Reserve Chairman Ben Bernanke announced on Wednesday that the Fed will not only continue purchasing $40 billion in mortgage-backed securities (MBSs) each month, it will also purchase an additional $45 billion in long-term U.S. Treasury securities. Both securities will be pay for with newly minted money. The Fed's goal is to lower already low mortgage lending rates. The theory is that even lower lending rates will accelerate the housing recovery, thus accelerating the economic recovery. An accelerating economic recovery, in turn, will spur additional job growth. For this reason, the Fed said it will continue to keep interest rates low until the unemployment rate drops to 6.5%. (The unemployment rate is currently 7.7%.) The Fed's strategy, which creates higher demand for MBSs and U.S. Treasury securities, helps hold mortgage lending rates low. The relationship is inverse: when demand rises for these securities, their price rises and their yield falls. The graph below illustrates the relationship between a $1,000 10-year note with an initial coupon payment of 6%, which means the note pays $60 in interest annually. When the market rate falls after the note is issued, the note's price rises. A higher price produces a yield that calibrates the lower market rate of interest with the coupon rate. Mortgage lending rates are tethered to yields on MBSs, which are tethered to U.S. Treasury security yields. In short, by purchasing both Treasury securities and MBSs, the Fed helps keep mortgage lending rates low. That said, a strange thing happened after the Fed announced it wanted to lower mortgage lending rates even further: The yield on the 10-year Treasury note actually increased (and has been increasing since last week). The 10-year note is a benchmark for the 30-year fixed-rate mortgage. So what's going on? The Fed isn't the only player in the mortgage market; the Fed isn't omnipotent. Outside market forces are also an important variable. The risk of price inflation rises with the Fed pumping more money into the financial system. In fact, the Fed itself raised its annual price-inflation target to 2.5% from 2.0%. If price inflation rises, mortgage lending rates will be pressured to follow. The point we want to emphasis is not to take for granted that mortgage lending rates will fall meaningfully lower. The Fed is implementing a strategy, not offering a guarantee.   Economic  Indicator Release  Date and Time Consensus  Estimate Analysis Home Builders' Index (December) Tues., Dec. 18, 10:00 am, ET 45 Index Important. Housing will become a more important variable in economic growth for 2013. Mortgage Applications Wed., Dec. 19, 7:00 am, ET None Important. Purchase applications continue to gain momentum and point to strong sales entering 2013. Housing Starts (November) Wed., Dec. 19, 8:30 am, ET 900,000 (Annualized) Important. Housing is gaining momentum, which is good news for job creation. Gross Domestic Product (3rd Quarter 2012) Thurs., Dec. 20, 8:30 am, ET 2.8% (Annualized Growth) Important. Growth is expected to be revised higher, but recent indicators point to lower 4 th quarter growth. Existing Home Sales (November) Thurs., Dec. 20, 10:00 am, ET 4.9 Million (Annualized) Important.Sales are trending higher despite supply issues in many local markets.   The Risk of Unintended Consequences We are obviously the beneficiaries of the Federal Reserve's push for lower mortgage lending rates, but its unprecedented foray into mortgage lending isn't without risk. The Fed's debt purchases have ballooned its balance sheet to $2.87 trillion in debt assets from $869 billion a few years ago. Because of the Fed's commitment to purchase $85 billion in additional debt each month, its balance sheet will expand to $4 trillion by the end of 2013. The Fed's expanded balance sheet is cause for concern. The larger the balance sheet, the riskier the Fed's exit strategy becomes. The prospect of rising interest rates means the Fed risks significant losses (because of the inverse relationship we discuss above). What's more, should the Fed attempt to wind down its portfolio of debt too rapidly, it will roil the Treasury and mortgage-debt markets, thus sending mortgage lending rates higher. We want to reiterate what we've been reiterating for the past few months: Housing prices are on the rise, while mortgage lending rates remain near historical lows. Housing prices will continue to rise, but there is no guarantee mortgage rates will continue to fall. In short, the benefits of waiting to borrow and buy simply aren't commensurate with the risk of waiting.

Inflation Pressure Rise as do Mortgage Rates

So the March goes on!!!

As you will note in the summary notes, the inflation pressures that everybody wondered about with the Fed's pumping dollars into the economy has begun to show itself. In the Virginian Pilot this a.m., cotton prices doubling was discussed due to increased demand and the need to increase clothing costs and other products with cotton content.   Thus, we may be seeing the beginning of a trend that will cause us all to watch the broad economic indicators to determine if inflation begins to raise its "ugly" head.

As you may well know, a bit of inflation is normal and is much preferred over deflation(lower pricing due to terrible economic conditions).  Yet, high inflation would lead to higher mortgage rates and more expensive house payments.  As noted below, rates are forecasted to go up to 5.5% by the end of the year by some.

Thus, it continues to be the absolute best time to buy a home....competitive home pricing and low interest rates.

Read below!!!       

                             Then get the move on, if it s time for you to get a home!!!

Keeping you updated on the market! For the week of  February 21, 2011 MARKET RECAP We knew it was only a matter of time, and now it appears the time, if not here, is close at hand. We are speaking of inflation, which is more real and tactual these days. Producer prices, which have been climbing over the past seven months, continued their march north. In January, the producer price index spiked 0.8 percent over December. However, the core number, which excludes energy and food prices, was even more disconcerting, posting a 0.5 percent gain – the most since October 2008. Rising prices on the producer side are eventually felt on the consumer side, so it was no surprise that consumer prices also rose in January, with the consumer price index posting a 0.4 percent increase. Consumer prices still appear subdued, posting a 1.6 percent increase for the past 12 months, but the data include big-ticket and infrequently purchased items, such as automobiles and airline tickets. Most of us are aware that day-to-day purchase prices are increasing at a higher rate. This latest data on price inflation points to upward pressure on mortgage rates; even though rates held steady this past week. Is there a reasonable estimate to how high rates will go? PMI Mortgage Insurance sees the 30-year fixed-rate mortgage hitting 5.5 percent by the end of this year and then increasing to 6.5 percent by the end of 2012. (For the record, PMI also predicted the 30-year loan would average 5.5 percent at the end of 2010.) We think 5.5 to 5.75 percent is a reasonable range, with a few caveats, of course, starting with the Federal Reserve. Fed Chairman Ben Bernanke has said that the Fed will keep buying Treasury securities through June to support the economy, but a couple Fed officials have argued that keeping the easy-money policy intact for too long could crimp the Fed's ability to bring inflation under control. The truth is that timing these things is obvious in theory, but very difficult in practice. However, even if we are wrong on price inflation and about the Fed's ability to optimally manage the money supply, other factors could keep mortgage rates moving higher. Pressure is building to wind down Fannie Mae and Freddie Mac, which have guaranteed more than nine out of every 10 mortgages since the financial meltdown. The White House has proposed increasing Fannie and Freddie's prices, phasing in a 10-percent down-payment requirement, and winding down their investment portfolio. These initiatives would put private capital and government capital on a more equal footing. We are in favor of more private investment, because it means more diversity in product offerings and more latitude in pricing and qualifying mortgage loans. Of course, the downside will be higher price loans, but that won't be so bad as long as the economy and the job market continue to improve. A 5-percent 30-year fixed-rate loan is nice, but a broader market of qualified applicants in a 5.5-percent loan market would be even nicer. Economic Indicator Release Date and Time Consensus Estimate Analysis Case-Shiller Home Price Index (December) Tues., Feb. 22, 9:00 am, et 0.8% (Decrease) Important. The worst in home-price declines is likely over. Mortgage Applications Wed., Feb. 23, 7:00 am, et None Important. Refinances continue to fall as the market shifts to purchase activity. Existing Home Sales (January) Wed., Feb. 23, 10:00 am, et 5.2 Million (Annualized) Important. Bad weather will likely cause sales to post at the low end of estimates. New Home Sales (January) Thurs., Feb. 24, 10:00 am, et 310,000 (Annualized) Important. Better pricing and reduced inventory are stabilizing the market. Gross Domestic Product (4th Quarter 2010) Fri., Feb. 25, 8:30 am, et 3.2% (Annualized Growth) Moderately Important. This preliminary report is expected to confirm strong growth in exports and retail sales. Bubble Trouble? We don't think so, but Robert Shiller of the Case-Shiller home price index does. Mr. Shiller recently cautioned that housing prices are likely to “stay in the doldrums for years,” but he added an alternative scenario where a growing speculative component could cause prices to overshoot on the upside. It is an unlikely scenario; rarely do consecutive bubbles form in the same market. Stocks that burst with the bursting of the tech bubble in 2001 are an obvious example. In addition, the common value matrices – such as median-income to median-home prices and rent to home-price appreciation are where they were around 2002. To be sure, they are still a little high by historical measures, but they are much more reasonable compared to 2006 – the apex of the housing bubble. The bigger concern is that the number of buyers who could buy won't. The New York Times recently interviewed Dan Cunningham, a 41-year-old renter. Here's what Mr. Cunningham told the Times reporter: “We would love to have a house; I have more than enough for a down payment. I’m pre-approved for a loan. But I have to have confidence it’s not going to lose another 20 percent.” The Times also reported that Cunningham plans to wait until he sees prices rising before making any offers. And that's the mindset we need to overcome. People like Dan Cunningham more often than not wait too long and find themselves chasing a less favorable, more expensive market. That's an important insight, and it's one the Dan Cunninghams of the world need to know.