Archive for January, 2007

It’s Not What They Do, It’s What They Say

David Kosmecki | January 31, 2007 in Uncategorized | Comments (0)

It’s all eyes on the Fed today as the market sits patiently, waiting for the 2:15 P.M. EST press release. Despite strong 2006 Q4 growth figures and a five percent spike in oil prices yesterday, there is an eerie calm while markets wait for the FOMC’s press release.

In its December 2006 press release, the FOMC stated that:

Economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market. Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters.

In other words, the group believed that housing slowed down the economy some but, overall, growth would continue at a "Goldilocks" level.

Today, markets expect with 100% certainty that the FOMC will not raise or lower the Fed Funds Rate, but the FFR is not what concerns them; it’s the verbiage of the press release that matters. If the above key paragraph changes to reflect a move away from "just right" growth into "runaway" growth, mortgage rates will adjust higher in response.

The Market Stops To Catch Its Breath

David Kosmecki | January 30, 2007 in Uncategorized | Comments (0)

60 days ago, markets put a 36% probability that the Fed would lower the Fed Funds Rate by March 2007. Today, that probability is zero. If you’re wondering why mortgage rates have ascended so quickly, that’s part of your answer — inflation expectations are changing.

Rates increased again on Monday and today the market catches its breath. Enjoy the calm and consider locking in your mortgage rate because beginning Wednesday morning at 8:30 A.M. EST, the data onslaught begins.

With several key inflation figures and the Federal Open Market Committee will concluding their two-day meeting, mortgage rates figure to bounce around like a lottery ping-pong ball clear through Friday.

The Week In Review (January 29, 2007) : What To Watch For

David Kosmecki | January 29, 2007 in Uncategorized | Comments (0)

After a week of bludgeoning in which mortgage rates rose as much as 0.50% on the heels of a supposed housing sector rebound, don’t expect the fireworks to stop anytime soon.

This Monday and Tuesday will be quiet with respect to economic releases, but Wednesday through Friday will be jammed-packed with mortgage-rate-moving data. The highlights include the Federal Open Market Committee’s press release (Wednesday), the Fed-preferred Personal Consumption Expenditures inflation data (Thursday), and the all-important jobs report (Friday).

Mortgage bond traders are heavily biased towards economic strength this week so any inflationary signals will result in continued increases in mortgage rates.

Has “Housing Stability” Become a “Housing Rebound”?

David Kosmecki | January 26, 2007 in Uncategorized | Comments (0)

Mortgage bonds continue their slide after yesterday’s outright hysteria.

Today’s New Homes Sales showed a 4.8% jump in December to an annualized pace of 1.12 million homes. This is about 14% higher than July’s pace and some economists are wondering if "housing stability" just turned into "housing rebound". Home supply plummeted from 7.2 months to 5.9 months over the same 5 months.

This week’s housing data is the last piece of economic data that the FOMC will have at its fingertips prior their meeting next week. The Fed will consider housing’s impact most carefully and some traders are already expecting an inflationary pressure warning.

Momentum is against mortgage bonds right now and that is rocketing rates higher.

Existing Home Sales Data is Weak, But Traders Find Strength

David Kosmecki | January 25, 2007 in Uncategorized | Comments (0)

Existing Home Sales showed weaker-than-expected numbers this morning, but that hasn’t stopped the slide in mortgage-backed securities. This is a counter-intuitive movement so let’s take a deeper look.

First, the supply of homes dropped from 7.3 months to 6.8 months. With less supply, there is a tendency for home values to stabilize and that is exactly what is happening. Median home prices are turning flat versus year-over-year declines during the last quarter of 2006.

Additionally, there is a growing feeling that the housing market has already bottomed-out and that the worst is behind us. A re-energized housing market will fuel additional economic growth in 2007.

Tomorrow, New Home Sales data will be released and the markets will respond in a similar fashion to today’s data. Weak or strong, the markets are looking for signs of strength and that is exactly what they’ll find.

Mortgage rates are higher on the day already.

The Market Sees What It Wants To See

David Kosmecki | January 24, 2007 in Uncategorized | Comments (0)

With the Federal Open Market Committee scheduled to meet for two days beginning January 30, the Fed has entered "blackout mode" and no Fed speakers are slated for the next week. Combine Fed Silence with lack of economic data, and market are moving on emotion and gut feel.

That’s bad news for rate shoppers because there is a growing feeling among markets that the Fed’s previous 17 rate hikes may not have been enough to stop runaway growth and inflation.

It will be fairly quiet today, but as we look ahead to tomorrow’s Existing Home Sales, traders almost want to see higher-than-expected results because it would reinforce their pre-existing notions that the housing market is strong. That will push mortgage rates higher immediately.

If the numbers are in-line or even lower, however, don’t expect the opposite reaction; mortgage rates will hold flat because traders will instead shift their attention to Friday’s housing data, looking for validation that their opinions of housing are correct.

Mortgage Insurance Is Tax Deductible in 2007, But With A Catch

David Kosmecki | January 23, 2007 in Uncategorized | Comments (0)

Adding complexity to the home financing process, The Tax Relief and Health Care Act of 2006 includes new tax code for homeowners. The act grants itemized deductions for private mortgage insurance (PMI) and government mortgage insurance (MIP) expense premiums paid in 2007.

For all loans originated in the 2007 calendar year, mortgage insurance is tax-deductible provided that two tests are met:

  1. The homeowner’s household income is $100,000 or less in 2007
  2. The home loan is for a primary or secondary residence

For households earning more than $100,000, the deduction is phased out to the tune of 10% per $1,000 of additional income until it reaches 0% at $110,000

So, if a single person earns $90,000 in 2007 and buys a home using MI, the MI expenses are tax-deductible in 2007. However, there’s an catch! Because the new tax code is due to expire December 31, 2007, there is no guarantee that the MI will be tax-deductible in 2008.

Until the tax code changed and before Prime Rate reached 5.25%, MI was a relatively expensive option versus using a second mortgage to help finance a home. Now, the playing field is somewhat leveled for comparison purposes. There are plenty of examples in which MI is a more cost-effective route than a home equity loan and the opposite is true, too.

A full analysis should be performed to determine which course of action is best for you, especially considering the "temporary" status of the tax break.

The Week In Review (January 22, 2007) : What To Watch For

David Kosmecki | January 22, 2007 in Uncategorized | Comments (0)

Last week, economic data showed that the economy continues to grow at a healthy pace and that last year’s fears of an economic recession may have been overblown; wholesale and consumer prices were up 1.1% and 2.5% annually, respectively.

With no clear recessionary indicators present in the market, long-term mortgages such as the 30-year fixed mortgage reached their highest levels in nine weeks. This week, markets will be looking for more clues on how housing is impacting the economy.

Expect a lot of rate volatility surrounding Thursday’s Existing Home Sales report and Friday’s New Homes Sales report.

The Irrelevance of The University of Michigan Consumer Sentiment Survey

David Kosmecki | January 19, 2007 in Uncategorized | Comments (0)

Today’s University of Michigan Consumer Sentiment survey showed that Americans are feeling terrific about the state of the economy. The index jumped to 98.0 in January from last month’s 91.7 level.

On a broader level, this is not an important piece of data for mortgage markets. The idea is that a more confident consumer will spend more money on goods and services and that will propel the economy forward. However, there is a no direct connection between how a person feels about the economy, and how they spend their own money. We only need to look at our own lives to figure that piece out.

More likely to roil markets today are speeches from Fed Presidents Lacker (Richmond) and Hoenig (Kansas City). With traders already on edge, they’ll be looking for Fed insight on inflation.

The Housing Engine That Won’t Slow Down

David Kosmecki | January 18, 2007 in Uncategorized | Comments (0)

Housing Starts handily beat economists’ expectations this morning and CPI showed strength, too, sustaining the market momentum that has trended mortgage rates higher over the last 30 days.

The Federal Open Market Committee has repeatedly told us that it expects the economy to slow down in 2007, led by a weakening housing market. And yet, housing refuses to die. The unexpectedly high number of homes that broke ground and building permits that were issued in December is giving markets something to think about.

Is the worst of the housing slump over, or did unseasonably warm weather stoke the figures? Nobody seems to be sure just yet. After opening down on the day, mortgage markets have recovered to flat.