Tuesday, November 22, 2011

Mortgage Market Guide Vol. 9 Issue 47

Last Week in Review: There was more negative news out of Europe and some positive economic news here in the US. But how did home loan rates fare?

They say it takes two to tango.... And Stocks and Bonds continue to battle for investing dollars and trade in seesaw fashion. What's causing this dance in the markets? Read on for details.

First, there was more pessimistic news out of Europe last week, as German leader Angela Merkel said that Europe is going through its toughest times since World War II, plagued by political unrest and a severe debt crisis. Reports showed there was a slowing in manufacturing to the point where recession fears have now gripped Europe.

Here lies another enormous problem for Europe: One way--and probably the biggest way--to lower government deficits, is to grow your way out and elevate Gross Domestic Product (GDP). However, many of the Southern Europe economies are on the brink of recession, which will make lowering the deficit through economic growth impossible.

So what does all of this mean for home loan rates here in the United States?

The problems in Europe should continue to support the US Dollar and US Bonds (including Mortgage Bonds, on which home loan rates are based) to some degree, as investors will view our Bonds as a safe haven for their money. Yet, if we continue to see better-than-expected economic data here like we did last week, this will offset the continued uncertainty surrounding the European crisis. And this is part of the reason that the Bond markets and home loan rates saw limited gains last week.

Some of the good news last week included tamer than expected wholesale inflation in the form of the Producer Price Index (PPI) and improved New York Manufacturing. Also, as you can see from the chart, the year-over-year headline Consumer Price Index (CPI) was down from the previous reading, which is good news for people concerned about inflation. However, the closely watched Core CPI rose by 0.1%, and though this was inline with estimates, it did push the year-over-year rate to 2.1% from 2%...a touch above the Fed's comfort zone.

The bottom line is that home loan rates are still near historic lows, which means now remains a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients

Forecast for the Week: There will be plenty of news to gobble up before the Thanksgiving holiday, with reports on the housing market, the state of the economy, inflation, consumer sentiment, and more.

This Thursday, all capital markets will be closed in observance of Thanksgiving, and Friday will be a shortened session. But we'll still see a cornucopia of economic indicators reported in just three days:

  • Existing Home Sales will be released on Monday. The report comes after last week's positive reports on Housing Starts and Building Permits, which signaled a glimmer of hope to the battered housing sector.
  • The second read on Gross Domestic Product (GDP) for the 3rd Quarter will be delivered on Tuesday. The initial reading showed a somewhat healthy 2.5% increase. Also, look for the Durable Goods Report on Wednesday, which gives us a read on big-ticket items and a sense of how the economy is doing.
  • The Consumer Sentiment Index will be released on Wednesday just in time for traders to square up positions ahead of the long holiday weekend.
  • Also released on Wednesday will be the Fed's favorite gauge on inflation, the Core Personal Consumption Expenditure, as well as Personal Incomes and Spending.
  • Finally, this week Initial Jobless Claims will be delivered on Wednesday rather than Thursday due to the Thanksgiving holiday. Claims have been below 400,000 for the previous three weeks, signaling that there may be a light at the end of the tunnel in the Labor markets.

In addition to those reports, the Fed's Federal Open Market Committee meeting minutes from November 2nd could have some surprises when released at 2 pm ET on Tuesday. Last week, the New York Fed leader William Dudley said that it would make sense for the Fed to begin purchasing Mortgage Backed Securities. The minutes could reveal if the members discussed the topic.

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.

View: Planning to do some shopping on Black Friday? Be sure to check out these tips first.

Black Friday Do’s and Don’ts: These tips will help you get the best deals as you do your holiday shopping -- even if you don't plan on braving the stores the day after Thanksgiving.

By Cameron Huddleston, Kiplinger.com

Black Friday - the day after Thanksgiving that traditionally signals the beginning of the holiday shopping season because stores offer deep discounts that draw large, deal-hungry crowds - is just a couple of days away. Are you ready?

If you're a Black Friday pro who lines up outside stores every year before the crack of dawn to nab bargains, you're probably already planning your strategy - and we can help.

If you savor your sleep and sanity, you're probably not even thinking about stepping in a store November 25. But keep in mind that you don't have to brave the crowds to take advantage of Black Friday sales.

These Black Friday do's and don'ts will help you score the best deals - whether you want to shop from home in your pajamas or venture out to the stores (perhaps in something other than PJs).

DON'T rely solely on leaked ads to plan your Black Friday strategy. Plenty of Web sites specialize in publishing Black Friday ads before they appear on retailers' Web sites or in newspapers. You can use these leaked ads as a starting point for planning your purchases, but realize that you're reading gossip, says Dan de Grandpre, CEO of dealnews.com, one of our favorite deal sites. Inevitably, some of the information in leaked ads is wrong, he says. Most legitimate ads aren't published until the Sunday before Black Friday.

DO expect some Black Friday sales to start on Thursday. Many retailers will start offering discounts online on Thanksgiving day. And some, such as Amazon, will offer Black Friday deals several days before November 25 -- so hot items may sell out before the big shopping day after Thanksgiving.

DON'T assume the best deals are in the stores. It's a tradition for a lot of people to get up at the crack of dawn and camp out in front of stores to scoop up deals. But de Grandpre says a lot of doorbusters (those deeply discounted items retailers use to get consumers in the door early Friday) will be available online, too -- especially on big-ticket products. And if an Apple product is on your gift list, you'll probably find it for less online (at Amazon.com, MacMall.com or McConnection.com) than at an Apple store -- and you may escape sales tax on your purchase.

DO brave the crowds if you're trying to snag an extremely limited item . You have a better chance of getting the deal if you go to the store - and are first in line. Keep in mind, though, that items that are marked down dramatically are cheap items to begin with - not top-selling, name-brand products, de Grandpre says.

DON'T do all your holiday shopping on Black Friday. Consider the Friday after Thanksgiving as one of several days to find deals. The best deals on apparel usually appear on Cyber Monday (November 28 this year), when retailers discount items online. Toys will be cheaper the first two weeks of December when Walmart and Amazon go to war with each other to offer the lowest prices and clear out inventory before Christmas, de Grandpre says. And the best deals on name-brand TVs and luxury items can be found in early December, too.

DO check return policies. Some retailers tighten their policies around the holidays. Some charge restocking fees if you bring an item back. And some won't let you exchange items that were manufactured specifically for Black Friday (to be sold at a low price). So be sure to ask each store what its policy is, and hang on to your receipts.

DON'T spring for extended warranties on big-ticket items. There's a good chance that a salesperson will try to talk you into paying extra for an extended warranty if you purchase a big-ticket item on Black Friday. That's because revenue from extended warranties helps make up for lost profits on discounted items. Typically, you'll pay 10% to 20% more for an item to extend a one-year manufacturer's warranty through the fifth year of ownership. But most major appliances do not break down within the extended-warranty period. Plus, you might already be covered if you use your credit card to purchase an item (see What You Need to Know About Warranties).

AND FINALLY … DON'T wait until the week before Christmas to shop. Retailers often raise prices because supplies are limited and they know that last-minute shoppers will pay more to purchase all the items on their gift lists.

Reprinted with permission. All Contents ©2011 The Kiplinger Washington Editors. www.kiplinger.com.

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