Archive for December, 2006

Vacation Days Are Good – Unless You’re The One Left Behind

David Kosmecki | December 29, 2006 in Uncategorized | Comments (0)

As we head into the last day of trading in 2006, there are a lot of market players that have already left for the long weekend. That's good for them, but rough for everyone else left behind.

With so many traders on vacation this week, there are fewer buyers and fewer sellers at any given price point for mortgage bonds. Therefore, it is much less likely that a person who wants to buy at a certain price will find somebody who wants to sell at a certain price

This is the concept of liquidity at its best.

With an already-fragile market psyche, the market’s complete lack of liquidity is causing what - on the surface - looks like an over-reaction to economic news, but is really just market forces at work. There just aren’t as many sellers willing to sell at the given prices that buyers want to pay.

Low liquidity causes prices for mortgage bonds move wildly and is the reason why rates have moved so much this week.

Markets are closing today at 1:00 P.M. EST which means that even fewer traders will show up at the office. Expect continued volatility.


New Homes Sales Is Less Important Than New Homes Closed

David Kosmecki | December 28, 2006 in Uncategorized | Comments (0)

Yesterday's New Home Sales report revealed the following signs of immense strength in the housing sector and mortgage rates are moving higher on the news.

  • Sales registered 1.047 million versus the expectation of 1.015 million — a difference of 3.15%.
  • Sales were revised higher by 46,000 over the past three months.
  • Inventory levels dropped to 6.3 months worth of supply from 6.7 months worth of supply.

The Fed has told us many times that a slowdown in the housing sector will lead to a slowdown in the overall economy. Only, it doesn't appear that housing is slowing down.

Or, is it?

According to the Wall Street Journal, contract cancellations for big builders are hovering at about 40%, twice last year's levels. Suddenly, New Home Sales doesn't seem so rosy. It doesn't matter that more homes go under contract if more contracts are cancelled, too.

Let this be one more lesson to look deeper than the headlines for clues about the economy.


Principal Payback On Long-Term Loans

David Kosmecki | December 27, 2006 in Uncategorized | Comments (0)

Did you know:

  • After 30 years, a 30-year mortgage term is paid in full.
  • After 30 years, a 40-year mortgage term has 57% of the original borrowed amount remaining.
  • After 30 years, a 50-year mortgage term has 81% of the original borrowed amount remaining.

Of course, it’s not all bad for the holders of longer-term mortgages — the mortgage interest tax deductions are higher of the holders of 40- and 50-year mortgage holders over the first 30 years.


It’s Not The House That Matters, It’s The Stuff You Buy For The House That Does

David Kosmecki | December 26, 2006 in Uncategorized | Comments (0)

With many traders on vacation this week, the impact of economic reports on mortgage rates will be amplified.

Specifically, be wary of this week’s New Home Sales and Existing Homes Sales reports. Since July, the Fed has repeatedly told us that housing will lead to an economic slowdown. As a result, markets have placed housing under a microscope and this week features two key housing releases.

Why is housing considered a major driver of the economy? Think about the last time you bought a house, or otherwise moved. What sort of purchases did you make that were a direct result of the move?

  • Television?
  • Stereo system?
  • Artwork?
  • Moving supplies?
  • Food?
  • Appliances?

How many trips to Home Depot or Lowe’s did you make?

Each trip to a new store is more money pumped into the economy. If people aren't moving, then they’re not spending.