Wednesday, March 7, 2012

Mortgage Market Guide Vol. 10 Issue 10

Last Week in Review: Big Ben spoke, but were his words music to the markets’ ears?

Don't fight the Fed. That popular saying last week was especially evident, as Fed Chairman Ben Bernanke's testimony on Capitol Hill had quite an impact on the markets.

Last week, Fed Chairman Ben Bernanke gave his semi-annual testimony in front of the House Financial Services Committee and his assessment of the economy, labor market and housing market was unchanged - highlighting that conditions remain sluggish, uneven and fragile. But the biggest takeaway was that he made no mention of another round of Bond buying or Quantitative Easing (QE3).

This clearly disappointed virtually all the markets as both Bonds and Stocks closed lower the day he spoke. So here's an important question to ask: Is the economy strong enough to keep the Fed from pumping any more money (QE3) into the economy? While the economy has improved on many fronts, it is still fragile and it would not take much for growth to slow...meaning more Fed intervention would be needed. For instance, high oil prices, a worsening situation in Europe or China, and escalating concerns in Iran could all cause our economy to slow.
One thing is for sure - the incoming economic data over the next couple weeks and months will be very important to follow for signs of continued economic improvement or potential slowing. One important factor to note from last week: inflation, as measured by the Core Personal Consumption Expenditure (PCE), rose by 0.2% in January, while the year-over-year Core PCE climbed to 1.9% and just beneath the Fed's upper target of 2%. Seeing inflation rise, even though the Fed continues to say it is moderating, is a concern. With Core PCE just beneath the Fed's desired target, upcoming readings will play an important role in how long the Fed continues its accommodative policy and any chance of more easing, QE3.

The most important thing to take away is that home loan rates still remain near historic lows, and now continues to be 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: The Jobs Report for February will be released on Friday; plus news on productivity and the service sector.

As you can see in the chart below, it was a volatile week in the markets, though Bonds and home loan rates were able to rebound late in the week. I'll continue to monitor this situation closely.

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Mar 02, 2012)

Several important economic reports will be released this week, especially Friday's Jobs Report for February.
  • The ISM Services Index will be released on Monday. This report comes after the weaker-than-expected ISM Manufacturing Index last week, so the markets will be watching it closely. After all, the service sector makes up about 70% of the U.S. job market!
  • The private ADP Employment Report will be delivered on Wednesday.
  • Another important report this week will be the Productivity Report on Wednesday. This report measures the number of hours it takes to produce a good in a factory. In the service sector, it is measured based on the revenue generated by an employee divided by one's salary.
  • As usual, Initial Jobless Claims will be released on Thursday. The number of Americans claiming first-time benefits has dropped in the past few months. Will the trend continue? We'll find out Thursday.
  • Last but not least is Friday's closely watched monthly official Jobs Report. January's report showed that 243,000 new jobs were created. This is a blockbuster report that always has the potential to move the markets!
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 above shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

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 late changes throughout the day, as well as on the rate sheets we start with each morning. 

View: Before you visit another web page, read the important article below about protecting your information online.

Protect Your Passwords, Accounts, Searches and Emails

Search engines make life easier. We've become so accustom to simply typing in a few words and hitting "search" that we don't even realize how much data is being generated with every click…or what that data says about us. Last week, however, this topic was forced front and center.

What Happened Last Week?

Google's new privacy policy went into effect last week. Based on the new policy, all data collected about you - including search queries, sites visited, age, gender and location - will be gathered and assigned to your online identity represented by your Gmail, Google Plus, and YouTube accounts.

Prior to that, information about your Google searches and sites visited was kept separate from Google's other products. The wall between those products has now been removed and more of your information than ever is potentially floating around in cyberspace.

All of this provides a good reason to revisit your privacy settings and your own habits when searching information or conducting business online.

Why Does It Matter?

The history stored in a browser can contain sensitive information, such as your phone number, account numbers, passwords, emails, and so on.

In addition, your search queries can also reveal information about you, including private information like health concerns. In fact, privacy experts have raised concerns about that type of information being gathered in the event that it may be used when you apply for credit, a new job, car or life insurance, and even health care coverage.

Finally, if you work in a business where you help people with private financial matters (such as purchasing a home, improving their credit score, and so on), the need for privacy is even greater.

The Good News Is…

The first piece of good news is that major companies such as Microsoft, Google, and AOL recently agreed to install a do-not-track button in Web browsers to make sure that you can browse the Internet with more privacy. But it'll take a while before this button actually arrives in a browser near you.

The second piece of good news is that you already have a simple step that you can use in the meantime to help keep sensitive information from being recorded.

Tell Your Clients, Business Partners, and Friends…

Most browsers already feature a privacy setting that can be turned on. When you activate the private browsing setting, the actions you take are kept private - which means caches, browser history, forms, passwords and other temporary files are not permanently recorded. Instead, once the window is closed, the data is erased. So you can feel more comfortable working online without worrying that bank balances, emails, or passwords are being captured.

This is especially important if you use a shared computer in a business setting or a public computer (such as a computer at a public library or Internet café).

PCWorld recently provided the following quick instructions for setting your browser to privacy mode:
  • Internet Explorer 9: Ctrl-Shift-P
  • Chrome: Ctrl-Shift-N
  • Firefox: Ctrl-Shift-P
  • Safari: Go to the "Edit" menu and choose "Private Browsing"
But Don't Forget!

Even if you use a privacy setting, you'll need to quit a browser when you're done. That's because the "back" button still works in privacy mode, so someone else could easily click back to previously viewed pages, such as an email or financial account if you step away.

Finally, remind your clients and friends that social media sites may ask for a lot of information, but that doesn't mean you should share it. Phone numbers, your full date of birth, and social security numbers should never be part of your profile.

Following those simple steps can help you feel more comfortable about working online, especially when sensitive information is on the line.

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