Mortgage Market Guide Vol. 10 Issue 13

Last Week in Review: Several housing-related reports were released last week, but did they show an improvement in the housing market?

The song remains the same. The title of that Led Zeppelin song is a great description for some of the things we're seeing lately in the Bond market. Read on for details, and what they mean for home loan rates.

First, several housing-related reports were released last week - and they show that the housing market continues to remain weak. Both Housing Starts and Building Permits came in meeting expectations. Existing Home Sales fell 0.9% in February to 4.59 million units (though that was nearly inline with expectations), while New Home Sales fell 1.6% in February, which was below expectations.

Perhaps the biggest takeaway from these reports is that they could cause the Fed to do another round of Bond buying (Quantitative Easing or QE3) under the guise of helping housing. The housing market remains fragile, and it can't absorb an uptick in rates just yet. It will be important to see if there are any rumors of QE3 in the coming days and weeks. Rest assured that the Fed has noticed the uptick in home loan rates and subsequent fall off in loan origination activity. This could certainly lead to another round of Bond buying, and as home loan rates are tied to Mortgage Bonds, as Bonds improve so will home loan rates.

Another thing that could help Bonds and home loan rates is renewed emphasis on safe haven trading. While global economic news has taken on a bit of a brighter tone lately, causing investors to move some of their money out of the safety of our Bonds, it's important to keep in mind that the debt crisis in Europe is far from over. Just last week, it was reported that Portugal's economy is set to contract by 3.3%, and it seems that it will be nearly impossible for Portugal to meet the tighter fiscal union rules and annual budget deficit targets. Also, Europe's Services and Manufacturing numbers contracted more than forecast...confirming that the region is moving into a recession.

It is important to note that while Stocks saw some declines last week, Bonds were unable to build any positive momentum. This is eye-opening and doesn't bode well for further price appreciation in Bonds. Whether the potential for QE3 or future safe haven trading helps Bonds and home loan rates in the future remains to be seen.

The bottom line 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: A busy week is ahead, with news on the state of the economy, inflation, consumer confidence and more. 

As you can see in the chart below, Bonds have been on a "Down Escalator" trend of late...and this trend is not friendly to home loan rates. I'll be watching closely to see if Bonds can "step off" this escalator and change course.

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Mar 23, 2012)

After last week's quiet economic release calendar, this week's calendar heats up.

• Pending Home Sales will be delivered on Monday and comes after last week's so-so reports on the housing sector.
• Consumer Confidence and Consumer Sentiment will be released on Tuesday and Friday, respectively. The data will be closely watched to gauge how the consumer is holding up as economic news has been on the positive side.
• Wednesday brings the Durable Goods Report, which measures big ticket items that last for an extended time.
• Initial Weekly Jobless Claims will be released on Thursday. Jobless claims fell to the lowest level since February of 2008 last week as the sector continues to breathe life into the economy.
• Also on Thursday, the final read for Gross Domestic Product for the 4th quarter of 2011 will be released. In order for the U.S. economy to strengthen, we will have to see sustained growth in the form of the GDP.
• Friday brings a bunch of reports, including Personal Income and Spending, as well as the Chicago Manufacturing Report.
• We'll also see the Core Personal Consumption Expenditures on Friday. This report provides insight into where inflation is at, so the data will be key to the Bond markets. As we know, higher inflation pushes Bond prices lower due to purchasing power loss that is associated with rising consumer prices. And, lower Bond prices can be bad news for home loan rates.

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

View: The IRS is warning people about a new tax scam. Be sure to share the below information with your colleagues, clients, and friends. 

IRS Warns of New Tax Scam


Senior citizens are the target of a phony refund scheme.
By Cameron Huddleston, Kiplinger.com.


The IRS is warning taxpayers to watch out for people promoting a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit. This credit is available to taxpayers who have qualified college expenses, but promoters of the new scheme claim they can get a refund based on the credit even for people who aren't enrolled in or paying for college.


Scam artists are targeting senior citizens, members of church congregations and people who have little or no income and normally aren't required to file a return, according to the IRS. Promoters of the scam often charge exorbitant upfront fees to file claims for nonexistent refunds.


The IRS already has stopped thousands of these fraudulent claims and is investigating the source of them. However, the IRS warns taxpayers to be aware of the following to avoid becoming a victim:


-Homemade flyers and brochures implying tax credits are available without proof of eligibility.
-Offers of free money with no documentation required.
-Promises of refunds for "Low Income - No Documents Tax Returns."
-Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
-Claims for the expired Economic Recovery Credit Program or for economic stimulus payments.
-Unsolicited offers to prepare a return and split the refund.
-Internet solicitations that direct individuals to toll-free numbers and then solicit Social Security numbers.


For more advice on how to avoid becoming a victim, see 5 Way To Avoid Tax Fraud.


Reprinted with permission. All Contents ©2012 The Kiplinger Washington Editors. Kiplinger.com. 

Economic Calendar for the Week of March 26 - March 30

As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.