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Last Week...

Remember, strong economic news often cause money to flow out of Bonds and into Stocks, as investors hope to take advantage of gains. That's partly what caused Bonds (including Mortgage Bonds, to which home loan rates are tied) to worsen late last week.

Also weighing on Bonds and home loan rates was the news that inflation is heating up. Despite the Fed's claim that inflation is moderating, the Core Consumer Price Index (CPI), which strips out volatile food and energy, rose to its highest levels since October 2008. Meanwhile, as you can see in the chart, the wholesale measuring Core Producer Price Index (PPI) rose double the expectations of 0.2%, coming in at 0.4%. Any hints of inflation can serve to spook Bond investors - causing both Bonds and home loan rates to worsen - as inflation can reduce the value of fixed investments like Bonds. This is one story to keep a close eye on in the weeks ahead.

The drama in Greece is another key story to monitor, as it also impacted Bonds and home loan rates last week. Greece sent the markets into the weekend with assuring messages that a deal for them to avoid default is close, and this sense of optimism weighed on Bonds and home loan rates. Our Bonds and home loan rates have benefitted from all the uncertainty in Greece, as investors have seen our Bond Market as a safe haven for their money. Time will tell whether this uncertainty and safe haven trading will continue.

This Week...

This week brings us the release of only three pieces of economic data for the bond market to digest along with two potentially influential Treasury auctions. The financial markets will be closed Monday in observance of the President's Day holiday, so don't expect to see new mortgage pricing until Tuesday morning. 

The National Association of Realtors will post January's Existing Home Sales report late Wednesday morning. It tracks home resales throughout the country, giving us a measurement of housing sector strength. It is expected to show a small increase in sales of existing homes, meaning the housing sector remained strengthened during the month. Ideally, the bond market would like to see a sizable decline in sales because weak housing is one of the hurdles that the economy must overcome to recover from the recession. The longer it takes for the housing market to recover, the longer it will take the economy to do the same.

In addition to this week's economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates.

Friday has two reports, the first being the University of Michigan's revision to their Index of Consumer Sentiment for February. Current forecasts show this index rising a little from its preliminary estimate of 72.5. This index is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but is not considered to be a major market mover. This means it will probably not have a significant impact on mortgage rates.

The last piece of data scheduled for release this week is January's New Home Sales report at 10:00 AM ET Friday morning. This is the least important report of the week, and is the sister report to Wednesday's Existing Home Sales. They measure housing sector strength and mortgage credit demand, but usually do not have a significant impact on bond trading or mortgage rates unless they show significant surprises. This report is also expected to show an increase in sales.

Overall, this week is lighter than last week in terms of economic releases. Therefore, it would not be surprising to see a fairly calm week in mortgage rates, or at least less movement than last week. However, news from overseas and stock movement could also heavily influence trading and mortgage rates. I think we will see the most movement either Wednesday or Friday, buy any day could turn active if stocks rally or sink. Despite the relatively light calendar this week, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers. 

Last Week...

Fed Chairman Ben Bernanke was back on Capitol Hill last week, reaffirming his stance on keeping interest rates low through 2014. Mr. Bernanke said that high unemployment continues to weigh on the housing markets, due to the high number of people who remain out of the labor force or are under-employed. With last week's Initial Jobless Claims coming in at 358,000, lower than the 370,000 expected, there is some good news when it comes to the labor market: It is improving, albeit stubbornly slowly.

Greece continues to make headlines, as European leaders have now demanded that the austerity measures Greece promises to make be put into law, rather than just be a verbal or virtual handshake. The other valid concern is that there's a Greek election coming this April. Should new leadership not back these verbal agreements, Germany and the rest of Europe will be throwing good money at a bad and unresolved situation.

While this uncertainty in Europe has led to continued safe haven trading in our Bond Markets, Bonds and home loan rates worsened last week as Stocks are off to their best start to the year since 1987. The Dow Jones Industrial Average is at its highest level since May of 2008. And with the Fed continuing to underwrite the economic recovery, we should expect higher Stock prices still - and this could continue to weigh on Bonds and home loan rates over time.

This Week...

 There are six economic reports worth watching this week that are likely to affect mortgage rates in addition to the minutes from the last FOMC meeting. Some of the economic reports are very important to the financial and mortgage markets, meaning it will probably be another active week for mortgage rates.

There is no relevant economic data scheduled for tomorrow, so look for the stock markets to be the biggest influence on bond trading and mortgage rates. The Greek Parliament is debating the requirements for their bailout today, so any decision there will likely help drive trading and mortgage prices tomorrow morning.

The week's first release is one of the highly important ones when the Commerce Department posts January's Retail Sales data. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched quite closely. If Tuesday's report reveals weaker than expected sales, the bond market should thrive and mortgage rates will fall since it would be a sign that the economy is not as strong as many had thought. However, a stronger reading than the 0.8% increase that is expected could lead to higher mortgage rates.

January's Industrial Production data will be released mid-morning Wednesday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.6% increase in production from December to January. A smaller than expected rise in output would be good news and should push bond prices higher, lowering mortgage rates Wednesday.

Wednesday also brings us the release of the FOMC minutes. Traders will be looking for any indication of the Fed's next move regarding monetary policy. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may indicate if there is a consensus amongst Fed members or if there is disagreement about their actions or inactions. This release may lead to afternoon volatility Wednesday, or it may be a non-factor. However, the minutes do carry the potential to influence mortgage rates so they should be watched.

January's Housing Starts will be posted early Thursday morning, giving us an indication of housing sector strength and mortgage credit demand. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for an increase in starts of new housing.

The Labor Department will post their Producer Price Index (PPI) for January early Thursday morning also. It measures inflationary pressures at the producer level of the economy and is considered to be one the two key measures of inflation we see each month. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. It is expected to show an increase of 0.3% in the overall reading and a 0.1% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about inflation that make long-term securities less attractive to investors.

The sister report to Thursday's PPI will be posted early Friday morning when January's Consumer Price Index (CPI) is released. The difference between the two is that the CPI measures inflationary pressures at the more important consumer level of the economy. With exception to maybe the Employment report, the CPI is the single most important report that we see each month. Its results can have a huge impact on the financial markets, especially on long-term securities such as mortgage-related bonds. It is expected to show a 0.3% increase in the overall index and a 0.2% rise in the more important core data. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall.

Also Friday morning will be the release of the Leading Economic Indicators (LEI) for January. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.5% increase, meaning that economic activity may rise in the near future. A smaller than expected rise would be good news for the bond market and mortgage rates, but the CPI draws much more attention than the LEI. Therefore, for this report to influence mortgage pricing, it will have to show a sizable variance from forecasts and the CPI will have to match estimates.

Overall, the most important day of the week will likely be Tuesday or Friday with the Retail Sales and CPI reports released. There is nothing of concern scheduled for tomorrow, so we can label it as the best candidate for the calmest day unless current events in Greece have an impact on the markets. In other words, be prepared for an active week in the markets and mortgage rates.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Last Week...

Last week, the Jobs Report brought some good news for the labor market, showing 243,000 jobs created, much better than expected. There was also a 0.2% decline in the Unemployment Rate, bringing it to 8.3%... the lowest since February 2009.

And there was other good news last week as well: The Commerce Department reported Personal Incomes rose in December by 0.5%, above expectations and well above the 0.1% reported in November. This marked the largest increase in nine months.

What does this mean for the housing market and home loan rates?

Good economic news often causes money to flow out of Bonds and into Stocks, as investors try to take advantage of gains. Even so, home loan rates remain near historic best levels. And, the problems in Europe remain. As anxiety continues, US Bonds (including Mortgage Bonds, to which home loan rates are tied) will benefit.

This Week...

There are only two pieces of monthly economic data scheduled for release this week. Neither of them is considered to be highly important, so we don't have much to pin our hopes on or to be concerned with this week. There are two Treasury auctions on the calendar that may influence mortgage rates the middle part of the week and the second part of Fed Chairman Bernanke’s testimony to Congress, but no important economic data.

Nothing of concern is due tomorrow, so look for the stock markets and news from Europe- particularly Greece, to drive the markets tomorrow. Fed Chairman Bernanke will speak to the Senate Budget Committee at 10:00 AM Tuesday. I don’t expect him to say anything different than he said last week to the House Budget Committee, but the Q&A portion of his appearance could lead to something new. It is worth watching, but it will probably not lead to a noticeable change in the markets or mortgage rates.

The two important Treasury auctions come Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important one as it will give us a better indication of demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would likely result in upward afternoon revisions to mortgage rates.

With little monthly and no quarterly economic reports being posted, Thursday's weekly release of unemployment figures may end up moving the markets and mortgage rates more than it traditionally does. The Labor Department is expected to announce that 370,000 new claims for unemployment benefits were filed last week, rising slightly from the previous week's total. The higher the number of new claims for benefits, the better the news for the bond market and mortgage pricing as it would indicate weakness in the employment sector.

The first monthly report comes early Friday morning when December's Goods and Services Trade Balance data will be posted. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to affect mortgage rates. It is expected to show a $48.2 billion trade deficit.

February's preliminary reading to the University of Michigan's Index of Consumer Sentiment will be released late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 74.0, down from January's final reading of 75.0. That would indicate consumers were less optimistic about their own financial situations than last month and are less likely to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered good news for bonds and mortgage pricing.

Overall, despite being a fairly light week in terms of economic releases and relate events, it is still relatively crucial for the mortgage market. We saw the yield on the benchmark 10-year Treasury Note spike higher Friday as a result of the stronger than expected employment data. Stocks rallied as a result of that data, extending the 2012 stock rally that has pushed the Dow up over 5% and the Nasdaq up 11% year-to-date. Both indexes are at their highest levels since May 2008 and December 2000 respectively. This has me believing we are due to see a pullback in stocks fairly soon. If/when this happens, we should see funds shift back into bonds for safety, leading to lower mortgage rates. Keep in mind that this is more or less just speculation, but I am expecting to move to a less conservative approach regarding short-term mortgage rates in the near future.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Newsworthy...

If you're interested in learning more about Arizona's economy, take a look at http://azeconomy.eller.arizona.edu/.

Last Week…

The Advanced GDP reading - or first of three readings - for the 4th Quarter of 2011 came in at 2.8%, a bit below expectations of 3.2%. This number will be revised two more times, but if the final GDP remains at 2.8%...then the overall GDP for 2011 would be a scanty 1.57%. That is certainly a "Gross" Domestic Product, when you consider that the government has underwritten more than half of that economic growth with the Payroll Tax benefit.

Also in the news last week, the Fed's Policy Statement after its regularly scheduled Federal Open Market Committee meeting was pretty much the same story as recent Statements, including stable long-term inflation expectations, a tepid economic recovery, and fragile job market. But there was one big exception to their norm. The Policy Statement said there will be "exceptionally low levels for the Federal Funds Rate at least through late 2014." This is a huge change from the previous statements of "low rates until mid-2013."

On the surface, extending the zero interest policy until 2015 tells us the Fed thinks the economy will just be slogging along, and accommodative monetary policy will be required to keep the economy growing at least at a modest pace.

In news out of Europe, yields in European Bonds have come down…and by quite a bit. This sparked some optimism that Europe's Long-term Refinance Operation (LTRO) has helped alleviate some pressure in the peripheral countries in the Eurozone, like Spain and Italy.

This Week...

This week is extremely busy in terms of economic data scheduled for release and will likely be another active week for mortgage rates. There are seven economic releases scheduled for the week, some of which are known to be extremely influential on the financial and mortgage markets. All seven of these reports are considered to be of moderate or high importance, meaning we should see quite a bit of movement in mortgage rates this week.

The first report of the week is January's Personal Income and Outlays data tomorrow morning, which gives us an indication of consumer ability to spend and current spending habits. This is important because consumer spending makes up two-thirds of the U.S. economy. Current forecasts call for an increase in income of 0.4% while spending is expected to rise 0.1%. Larger increases would be good news for the stock markets and could hurt bond prices, driving mortgage rates higher tomorrow. Smaller than expected increases would be considered good news for mortgage rates.

Tuesday has two reports scheduled with the first being the 4th Quarter Employment Cost Index (ECI). It measures employer costs for employee wages and benefits, giving us an indication of the threat of wage inflation. If wages are rising, consumers have more money to spend. The report is considered moderately important and usually has more of an effect on the bond market than the stock markets. Current forecasts are showing an increase of 0.4%. A lower than expected reading would be favorable to bonds and mortgage rates Tuesday.

January's Consumer Confidence Index (CCI) will be posted late Tuesday morning. This report is considered to be of moderate to high importance to the bond market and therefore can move mortgage rates. It is an indicator of consumer sentiment, which is important because waning confidence in their own financial situations usually means that consumers are less willing to make large purchases in the near future. Due to the significance of consumer spending, market participants are very attentive to related data. Analysts are expecting to see an increase from December's reading, indicating a higher level of consumer confidence. A reading much smaller than the expected 67.0 would be ideal for the bond market and mortgage rates.

Wednesday’s big report comes late morning when the Institute of Supply Management (ISM) releases their manufacturing index for January. This index tracks manufacturer sentiment by rating surveyed trade executives' opinions of business conditions. It is usually the first economic data released each month and is one of this week's very important reports. Current forecasts are calling for a reading in the neighborhood of 54.7, which would be an increase from December's reading. The lower the reading, the better the news for the bond market and mortgage rates because weak sentiment indicates a slowing manufacturing sector.

Wednesday also has a couple of private sector employment-related reports due to be released. They normally don’t draw much attention unless they show a significant surprise. I still not too concerned about their results, but the potential does exist that a significant variance in the numbers could lead to changes in mortgage pricing.

Employee Productivity and Costs data for the 4th quarter will be released early Thursday morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing. If it varies greatly from analysts' forecasts of a 0.6% increase, we may see some movement in mortgage rates. However, the markets will be much more interested in Friday's data, so a slight difference shouldn't cause a noticeable move in rates.

Friday's data is by far the most important of the week. The Labor Department will post January's Employment data early Friday morning, giving us the U.S. unemployment rate and the number of jobs added or lost during the month among other related statistics. Analysts are expecting to see the unemployment rate remain unchanged at 8.5% and that approximately 170,000 new jobs were added to the economy. An increase in unemployment and a much smaller increase in payrolls would be great news for the bond market. It would probably create a bond rally, leading to lower mortgage rates Friday morning. However, if Friday's report reveals stronger than expected results, we can expect to see mortgage rates move higher.

Late Friday morning, December's Factory Orders data will be posted. It is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is one of the less important reports of the week, but can influence mortgage pricing if it varies greatly from forecasts. Analysts are expecting a 1.6% increase in new orders, hinting at manufacturing sector strength. However, the Employment report will be the focus of the markets.

Overall, look for Wednesday or Friday to be the biggest day for mortgage rates. Friday's Employment report is the most important piece of data, but Wednesday's ISM Index draws a lot of attention also. We could also see movement in rates tomorrow morning following the activity at the end of last week. If we get weaker than expected results from the ISM and Employment reports, we should see rates close the week lower than last Monday’s opening levels. If the data shows stronger than expected results, we may see mortgage rates move higher for the week. With some very important data being posted over the next five days, I strongly recommend keeping fairly constant contact with your mortgage professional if still floating an interest rate.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Last Week...

Inflation was in the news twice last week. The Core Producer Price Index (PPI) came in raising the year-over-year Core PPI rate to a lofty 3%... the highest since April, 2009. However, the Core Consumer Price Index (CPI) was in line with expectations.

Inflation is the archenemy of Bonds and home loan rates because inflation erodes the value of the fixed return provided by a Bond, which causes home loan rates to rise. It will be interesting to see if the Fed says about inflation after it's regularly scheduled  Federal Open Market Committee this week... inflation can move the markets and impact rates.

This Week...

This week is quite busy in terms of economic data and other events that are relevant to mortgage rates and is likely to be an active one for mortgage rates. There are five economic releases scheduled for the week in addition to the first Federal Open Market Committee (FOMC) meeting of the year that will include a press conference with Chairman Bernanke, two potentially influential Treasury auctions and the President’s State of the Union address. All but one of the five economic reports are considered to be of moderate or high importance, meaning we should see quite a bit of movement in mortgage rates this week.

There is nothing of relevance scheduled for Monday or during trading hours Tuesday, thus we can expect the stock markets and any potential news from overseas to drive bond trading and mortgage pricing. If the major stock indexes post strong gains, bonds will probably falter, leading to higher mortgage rates the early part of the week. President Obama will make his State of the Union address at 9:00 PM ET Tuesday evening. Topics and parts of the speech will be leaked prior, which may influence the markets during regular hours the first two days of the week. The biggest reaction to his words will come Wednesday morning.

Wednesday also has no relevant economic data scheduled for release, although it does have this year's first FOMC meeting results. The meeting will begin Tuesday and adjourn at 12:30 PM ET Wednesday. It is expected to yield no change to short-term interest rates, but as is often the case, traders will be looking for any indication of the Fed's next move and when they may make it. I believe that there is little chance of indicating a possible rate hike in the near future, but any hints of a change in theories or timetable by the Fed will cause afternoon volatility in the financial and mortgage markets. The meeting will adjourn early instead of the regular 2:15 PM time because it is one of four meetings this year that will be followed by a press conference hosted by Fed Chairman Bernanke.

Thursday morning brings us the release of three of the week’s economic reports. The first is December's Durable Goods Orders at 8:30 AM ET. This data helps us measure manufacturing strength by tracking new orders at U.S. factories for products that are expected to last three or more years, also known as big-ticket items. The data often is quite volatile from month- to-month, but is currently expected to show an increase in orders of approximately 2.0%. A smaller than expected increase would be considered good news for bonds and mortgage rates, but a slight variance likely will have little impact on Thursday's mortgage pricing.

Next is December's New Home Sales report at 10:00 AM ET. It is considered to be the sister release to last week's Existing Home Sales, giving us a small snapshot of housing sector strength. It tracks a much smaller portion of home sales than last week’s report did and is forecasted to show an increase in sales of newly constructed homes. However, this data is not important enough to heavily influence mortgage pricing unless it varies greatly from forecasts.

The third report of the day is December’s Leading Economic Indicators (LEI) at 10:00 AM ET. The LEI attempts to measure economic activity over the next three to six months. It is considered to be of moderate importance to the bond and mortgage markets. Analysts are currently expecting the Conference Board to post a 0.7% increase, meaning that economic growth over the next few months will likely rise fairly quickly. Generally speaking, this would be bad news for the bond market because a strengthening economy makes long-term securities such as mortgage bonds less attractive to investors.

The remaining two economic reports will be released Friday morning, one of which is arguably the single most important reports that we see regularly. That would be the initial reading of the 4th Quarter Gross Domestic Product (GDP) early Friday morning. This data is so important because it is considered to be the best measurement of economic activity. The GDP itself is the total sum of all goods and services produced in the United States. Its results usually have a major impact on the financial markets and can cause significant changes in mortgage rates. There are three readings to each quarter's activity, each released approximately one month apart. The first reading, which usually carries the most significance, is expected to be an increase of 3.1%. A noticeably weaker reading would be great news for the bond market, questioning the pace of the economic recovery. That would likely fuel stock selling and a rally in bonds that would push mortgage rates lower Friday morning. However, a stronger than expected reading should fuel bond selling and higher mortgage rates.

The last report of the week is the revised reading to the University of Michigan's Index of Consumer Sentiment. This index is a measurement of consumer confidence that is thought to indicate consumer willingness to spend. If confidence is rising, consumers are more apt to make large purchases in the near future. Since consumer spending makes up two thirds of the U.S. economy, any related data is watched closely. I don't see this data having much of an impact on the markets or mortgage rates due to the importance of the GDP reading.

And if we didn't have enough to watch already, there are two relatively important Treasury auctions for the markets to digest. The Fed will auction 5-year and 7-year Treasury Notes Wednesday and Thursday, respectively. If they are met with a strong demand from investors, the broader bond market may rally during afternoon hours those days. If the sales draw a lackluster interest, they could lead to bond selling and higher mortgage rates during afternoon hours those days.

Overall, look for Wednesday or Friday to be the biggest days for mortgage rates. Friday's GDP is the single most important piece of data this week, but we may see quite a bit of movement in rates Wednesday morning and again in the afternoon following the Fed’s time in the spotlight. I would be quite surprised if we did not see a very active week in rates, including intra-day revisions on multiple days. I strongly recommend that constant contact is maintained with your mortgage professional this week if still floating an interest rate.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Last Week...

There was good news last Friday, as the first look at Consumer Sentiment for January came in at 74.0, which is the highest level since May 2011. However, there was also news last week that the holiday shopping season may not have been as robust as previously thought.

Retail Sales in December rose by a meager 0.1% from 0.4% in November, and when stripping out autos, sales actually fell 0.2%. Why did this happen? It seems that steep holiday discounting held down the value of goods sold, so sales were big, but only because of the heavy discounting.

The news out of Europe last week also wasn't too happy. German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde met to discuss and finalize the debt restructuring deal for Greece. Back in October, a deal called for Bondholders to "accept" a 50% haircut on the face value of the Greek debt - but as creditors and authorities have started to forge a final deal, the actual haircut back to investors is looking quite likely to be larger than 50%. This is simply because worsening financial conditions in the Greek economy make paying the debt back with "just" a 50% haircut highly unlikely...maybe impossible. What's more, the next reasonable question to consider is will Ireland, Portugal and even Italy ask for a similar haircut or deal on what may be unsustainable debt in their countries?

The happy news is that these problems are finally being addressed to make things better in the future. And in the short term, the uncertainty should keep money flowing into the relative safe haven of the US Dollar and US Bonds - including Mortgage Bonds, to which home loan rates are tied. In addition, Mortgage Bonds continue to be supported by the Fed's purchases, which are also helping to keep home loan rates at record low levels.

All of this means that now continues to remain a great time to purchase or refinance a home. Let me know if I can answer any questions.

This Week...

This week brings us the release of five pieces of economic data for the markets to digest, with two of them considered to be highly important for mortgage rates. It is a shortened trading week with the stock and bond markets closed Monday in observance of the Martin Luther King Jr. holiday. The financial and mortgage markets will reopen Tuesday morning for regular trading hours.

The first report of the week will be posted early Wednesday morning when the Labor Department's Producer Price Index (PPI) will be posted at 8:30 AM ET. The PPI is important to the markets and mortgage rates because it measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.1% increase in the overall reading and a 0.1% increase in the more important core data reading that excludes volatile food and energy prices. A larger than expected increase in the core reading could mean higher mortgage rates Wednesday since inflation is the number one nemesis of the bond market. It erodes the value of a bond's future fixed interest payments, making them less attractive to investors. Accordingly, they are sold at a discount to offset the drop in value, which drives their yields higher. And since mortgage rates follow bond yields, this means higher rates for borrowers.

December's Industrial Production report is also on Wednesday’s agenda with a release time of 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength or weakness. Current forecasts are calling for an increase in production of 0.5% from November's level. A smaller than expected increase would be considered good news for bonds and could help lower mortgage rates, but the PPI is by far the most important data of the day for the bond market and will have the biggest impact on that day's mortgage pricing.

Thursday also has two relevant reports scheduled. December's Consumer Price Index (CPI) at 8:30 AM is the first. This is also one of the most important monthly reports that we see each month since it measures inflationary pressures at the consumer level of the economy. As with the PPI, there are two readings in the release. The overall index is expected to rise 0.1% while the core data is expected to increase 0.1%. Weaker than expected readings should lead to bond improvements and lower mortgage rates Thursday morning.

Last month’s Housing Starts report is the second of the day, also at 8:30 AM. It helps us measure housing sector strength and future mortgage credit demand by tracking construction starts of new homes. It is not considered to be one of the more important releases each month, so I don't see it causing much movement in mortgage rates Thursday, especially since it follows the very important CPI.

Friday has the remaining report, December's Existing Home Sales at 10:00 AM ET. The National Association of Realtors will give us this housing report, which tracks home resales in the U.S. It is expected to show an increase in home sales last month, meaning that the housing sector strengthened. Ideally, the bond market would prefer to see a decline in sales, but a small increase should not negatively affect mortgage rates Friday.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Last week...

On Friday, the Labor Department reported a net of 200,000 jobs were created in December. The Unemployment Rate fell to 8.5% from 8.7%. We still have 5.6 million people unemployed for 27 weeks or more, and that number is little changed this month. But the trend is improving.

Other news our of Europe reported that member countires are continuing to be concerned about getting ther deficits and debts in order. The problems there do not have easy solutions and may take some time to clear up.

This week...

This week brings us the release of four pieces of economic data to digest along with two important Treasury auctions. None of them are scheduled for tomorrow or Tuesday, meaning all of the week's events will come over two and a half days. Until we get to the week's first relevant event Wednesday afternoon, look for the stock markets to be a major contributor to movements in bond prices and mortgage rates. Stock strength will likely equate into bond weakness and higher mortgage rates, and vice versa if stocks fall.

The first relevant report of the week is the Federal Reserve's Beige Book report at 2:00 PM ET Wednesday. This report, which is named simply after the color of its cover, details economic conditions throughout the U.S. by region. Since the Fed relies heavily on it during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises, particularly regarding inflation, unemployment or future hiring.

The two important Treasury auctions will be held Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important of the two as it will give us a better indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would result in upward revisions to mortgage rates.

Thursday has December's Retail Sales data scheduled, which is the most important report of the week and one of the more watched releases we get each month. This Commerce Department report measures consumer spending by tracking sales at retail establishments in the U.S. Since consumer spending makes up two-thirds of the U.S. economy, any related data is watched closely. Current forecasts are calling for an increase in sales of approximately 0.4%. A smaller than expected increase in sales would indicate consumers did not spend as much as thought over the holiday season, helping to prevent rapid economic growth. That would be considered good news for the bond market and mortgage rates.

The last two reports will be posted Friday morning. The first is November's Goods and Services Trade Balance at 8:30 AM ET. It the week's least important data and probably will not influence mortgage rates. It measures the size of the U.S. trade deficit and is expected to show a $44.3 billion trade deficit. This data usually does not directly affect mortgage rates, but it does influence the value of the U.S. dollar versus other currencies. A stronger dollar makes U.S. securities more attractive to international investors because they are worth more when sold and converted to the investor's domestic currency. But unless we see a significant variance from forecasts, I don't believe this data will lead to a change in mortgage rates Friday.

The final report of the week is January's preliminary reading to the University of Michigan's Index of Consumer Sentiment. This index measures consumer willingness to spend and often has enough of an impact on the financial markets to slightly change mortgage rates. Good news would be if it shows a reading weaker than the 75.0 that is expected. December's final reading was 71.0, indicating that consumer sentiment likely rose this month. The bond market prefers to see waning confidence because if consumers are less optimistic about their own financial situations, they are less apt to make large purchases in the near future. Slowing spending levels limits fuel for economic growth, making long-term securities such as mortgage bonds more attractive to investors.

Overall, Thursday will likely turn out to be the most important day of the week due to the Retail Sales report but Wednesday’s Beige Book and 10-year Note auction may also cause some volatility in the markets. However, any day can become active if the stock markets show significant gains or losses. Therefore, I strongly recommend maintaining contact with your mortgage professional this week, especially the latter part if still floating an interest rate.

"Rates... are rates... are rates"

To select a lender to handle your financing needs, it's important to focus on the lender, not rates. Interest rates are driven by Wall St. And most often, lenders track the 10-yr and 30-yr bond to determine the rate they will offer that day. As the bond rates move up or down, so does the interest rate.

Some unscrupulous loan originators will quote you a rate to get you in the door, then indicate rates have "changed" after you've started the process. It's much more important to interview a lender and get a feel for their experience, product knowledge, and program availability. Interest rates are the least important issue, as lenders have no control over what the bond market is doing.

One of the first things you should ask is if you can get a list of references of previous borrowers. If they're can't or are unwilling to provide a list, that should send up a red flag. Once you have your list, contact previous borrowers and ask these Five Questions:

1) What was their overall experience like with that lender?
2) Were they happy with the final outcome?
3) Were their concerns handled quickly and efficiently?
4) Were calls answered or returned promptly?
5) Would they recommend the lender to family or friends?

And, consider using a mortgage company instead of a bank. Since banks provide a number of services, i.e. car loans, business loans, credit cards, checking accounts, etc., while mortgage companies only offer one thing - mortgages - generally, a mortgage company is better equipped to focus specifically on your needs while offering you better rates and service.

Happy Shopping!

December 19 - 23, 2011

This holiday-shortened trading week brings us the release of eight monthly or quarterly economic reports in addition to two semi-relevant Treasury auctions. None of the releases are considered to be highly important to the markets and mortgage rates, but several of them do have the potential to cause some movement in rates. The more important news comes later in the week. Therefore, we may see more movement in mortgage pricing as the week progresses.

November's Housing Starts will be released early Tuesday morning, but it is the week's least important data. I don't see it causing much movement in mortgage rates unless it shows a huge variance from expectations. It is expected to show little change in construction starts of new homes, hinting at a flat housing sector last month. Generally speaking, an increase in new starts would be bad news for bonds and mortgage pricing, but unless there is a significant surprise it will likely have little impact on tomorrow's mortgage rates.

This week also has Treasury auctions scheduled, but the two that are most likely to influence mortgage rates are Tuesday's 5-year and Wednesday's 7-year Note sales. If these sales are met with a strong demand, particularly Wednesday's auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor demand may create bond selling and upward revisions to mortgage rates.

Overall, I am expecting to see some movement in the markets and mortgage rates, especially if we get some surprising results from the week's data or news about Europe’s financial crisis. Despite the holiday season, we need to keep a cautious approach toward rates because we are likely to see very thin trading (light volume) as a result of many traders keeping short hours or home for the holiday altogether. This means that firms that trade bonds will likely be keeping only a skeleton staff the latter part of the week and raises the possibility of a stronger reaction to surprises in the economic data than we normally would see.

Interest rates are now at an all-time low? But why? There are a variety of reasons including the European crisis, jobs, the stock market instability, etc.

Over the past several months, we have seen interest rates creep down, generally tracking the 10-year bond. On September 22^nd, the 10-year bond reached a new low-water mark of 1.72%, and the 30-yr mortgage rate was 3.75%. Since then, the bond yield has increased slightly, generally trading in a range between 1.90%-2.10%. 30-yr mortgage rates, normally highly influenced by the movement of the 10-yr bond, have been holding at about 3.75%.

Today, with the bond yield at 1.91%, we’re still quoting 3.75%, and when the bond was over 2.00%, interest rates were at 3.875-4.00%. Interestingly, when the bond fell back below the 2.00% threshold, rates did not move accordingly until it started to approach 1.90%.

This is a very strange time in the mortgage arena… interest rates are at all-time lows, the Obama administration announced a modified Fannie Mae/Freddie Mac lending program to encourage refinancing, yet we’re dealing with tighter underwriting standards that make it more difficult to qualify. And, we have to deal with appraisals coming in low as well.

With all that said, it’s still a great time to buy or refinance. Prices are at all-time lows, the worst of the housing crisis is behind us, and interest rates are extremely low. A $150,000 loan today would have a principal and interest payment of $694.67, and it’s very likely the total payment would be well below the rent for that same home. It’s a ‘perfect storm’ for opportunity.

Credit Scoring – the Good, the Bad and the Ugly

What is a Credit Score?

When applying for a mortgage or most any form of credit today, a lender will invariably order a credit report and look at the Credit Score. What is this mysterious score and how does it affect a loan transaction?

Very simply, a Credit Score is a statistical model to objectively evaluate all credit information available about a borrower that is retained at a credit bureau. It weighs and balances varying pieces of information more precisely than can an individual to better access risk for repayment of debt.

Credit Scores have been around for some time, with car dealerships, insurance companies, and mortgage companies using this tool to evaluate a borrower’s likelihood of repaying the loan. An evaluation of millions of consumer’s data and repayment histories has generated this model. Credit Scores generally range from 300 to 850, and the higher the score, statistically the more likely a borrower will repay the debt.

Before Credit Scores, an individual underwriter would look at a credit report and make a subjective decision – was this person’s credit good enough to qualify them for the loan they were applying? Now, the evaluation is done by a complicated mathematical formula that allows an underwriter to simply view the Credit Score to make the determination.

Historically, most creditors focused on one specific area – how does the borrower pay his bills. Everything else was set aside in favor of evaluating whether or not a borrower paid his bill on time. Since the advent of Credit Scoring, that focus has changed.

The odds a borrower will default decreases proportionally as the Credit Score increases – 1 in 8 borrowers with a score of 600 or less will default, while only 1 in 1,292 of those with a score of 800 or above will default. This allows lenders to tailor loan programs with varying degrees of risk, and appropriately, interest rates. That is why you will see some borrowers qualifying for a loan with a higher rate.

How is a Credit Score calculated?

A Credit Score considers five primary areas of a person’s credit:

- Past Payment History
- Outstanding Debt Utilization
- History of Credit
- Type of Credit
- Inquiries

Past Payment History:

- Represents 35% of the total Credit Score
- Considers how promptly a borrower makes a payment
- Negative impact from payments over 30 days late
- Includes information from public records on foreclosures, bankruptcies, tax liens

This is the most important segment of Credit Scoring but only represents 35% of the total score. Pay bills within 30 days to avoid a negative rating.

Outstanding Debt Utilization:

- Represents 30% of the total Credit Score
- Considers the average balance and percentage owed on revolving and installment accounts
- Reviews the ratio of debt to total revolving limits

Debt Utilization focuses on the relationship between the amount of dept and the potential debt available. It is best to keep the debt below 50%, and more recently, below 40% of the total credit limit available, for each account.

History of Credit:

- Represents 15% of the total Credit Score
- Considers the number of months since the oldest active revolving and installment trade lines were opened
- “Credit surfing” can be a problem

A brand new account will lower the score more than an older account, even if paid on time.

Type of Credit:

- Represents 10% of the total Credit Score
- Considers the number of bank, retail or department store cards and finance company accounts being used

Who you owe money to is important. Owing money to a finance company is less favorable than owing money to a bank.

Inquiries:

- Represents 10% of the total Credit Score
- Considers the number of inquiries in the last 12 months

Inquiries are created when creditors review a potential borrower’s credit. The Credit Score is NOT impacted with pre-approval solicitations for marketing purposes, inquiries by the consumer, or employer inquiries.

How to improve your Credit Score?

Credit Reports are inherently fraught with errors. You should take steps to insure your information is correct. All consumers have the right to obtain a free copy of their credit report annually at www.annualcreditreport.com or call 877-322-8228.

There are several strategies you can embrace to improve your Credit Score:

1) Pay your bills on time. This has the single biggest impact on your credit score. Pay them within 30 days.

2) Maintain at least 2 credit cards but avoid having more than 5. Too many credit cards will lower your score. 

3) Payoff your credit cards each month. This not only saves you interest, but demonstrates you have the ability to manage your credit.

4) Maintain a balance on your credit cards that does not exceed 40-50% of the credit limit. If you have a line with a $3,000 limit, keep your balance under $1,500. It’s actually better to have two cards, each with a $2,000 limit and a balance of $1,000 than to have one card with a $3,000 limit and a balance of $2,000.

5) Don’t close old accounts. Old accounts are better than new ones. Even if you have a zero balance, maintaining that account in an active status improves your score.

6) Watch whom you borrower from. Try to borrower from banks, credit unions or mortgage companies rather than finance companies. Furniture and appliance stores normally use finance companies, and WHO you owe to will affect your score.

7) Limit the number of credit cards you have, and don’t apply for credit frequently. Don’t get trapped into applying for credit cards at airports, athletic events and the like. The application process itself impacts your credit score – each time your credit report is pulled by a prospective creditor, your credit score could drop.

Maintaining your good credit rating is an ongoing process. By being vigilant in managing your credit, the financial benefits will follow.

It's interesting to see how the Obama Refinancing Plan is being characterized. Usually, when a proposal comes out of Washington, both sides of the aisle line up to support or oppose it. But in this case, we haven't heard much controversy about it, that is, until you listen to the industry insiders.

The bottom line... probably less than 1 million people will be helped, yet there are estimated to be 15-20 million in need of it. And, your loan must be owned by Fannie or Freddie and be originated before July, 2009 to qualify.

As this progresses, we'll have to see how it all shakes out... what changes are made, levels of support, etc. We'll keep you informed.

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