Archive for February, 2008

Market Update – February 29, 2008

David Kosmecki | February 29, 2008 in Uncategorized | Comments (0)

Risks favor: Floating

– but very cautiously

Current Price of FNMA 5.5% Bond: $100.47, +34bp

It’s Leap Day…and Bonds are leaping higher. Ever since bouncing off the 200-day Moving Average on Tuesday, Mortgage Bonds have leaped an amazing 216bp higher! Prices have just edged above a dual layer of overhead resistance provided by the 25 and 50-day Moving Averages, so we will have some caution with our Floating stance as prices battle along this ceiling. Much will depend on how stocks fare today, with them already down significantly in the early going.

The Core Personal Consumption Expenditure Index (PCE), the Fed’s favored gauge of consumer inflation, was reported at 0.3% for the month of January. This matched expectations and left the closely watched year over year Core rate at 2.2%, which is outside of the Fed’s desired target zone for Core Inflation of 1- 2% – but not crazy. Bonds reacted little to the report, as “dovish” comments by Fed Chair Bernanke over the past two days released the potential steam out of the report. Personal Income and Spending both matched expectations and offered no surprises. Again, the cuts and stumulus have yet to affect the current environment, so inflation may be a much more serious concern as the year goes on…and that will eventually hurt rates.

The Chicago Purchasing Manager’s Index was reported slightly below expectations and the University of Michigan Consumer Sentiment Index for February met expectations. The market reacted little to these reports.

The Fed will be on parade today with several officials scheduled for appearances. This morning, Boston Fed President Eric Rosengren “colored glasses” and Fed Governor Frederic “Fast Freddy” Mishkin will speak. Later today, Atlanta Fed President Dennis “The Spider” Lockhart and St. Louis Fed President William “Everyone In The” Poole will talk. Question and answer sessions are expected to follow each appearance and the nature of their unscripted commentary during Q&A could sure influence the markets as we’ve seen in the past.

After such a fast rally higher in prices and with the Bond testing a dual layer of resistance at the 25 and 50-day Moving Averages, we will continue to Float, but extra cautiously, as we watch how Bonds react to this ceiling.


Making Your Home Sell Faster With Psychology

David Kosmecki | in Uncategorized | Comments (0)

The #1 home selling tip that every good real estate agent knows: To sell your home quickly, price it right

When selling a home, understanding a little bit about home buyer psychology can help you move your home more quickly.

After all, what people perceive helps define how they act.

A recent article from RealEstateJournal.com listed techniques home sellers can use to attract more offers from buyers.

The tips included:

  1. Number Play: $299,999 seems far less expensive than $300,000
  2. Connotation: Precise numbers indicate value; Round numbers indicate prestige
  3. Simpicity: If you drop the price, make the math easy for the buyer so the savings are obvious

Curiously absent from the piece, however, is the #1 home selling tip that every good real estate agent knows:

To sell your home quickly, price it right.

A “good buy” speaks for itself — no psychology required.


As The Fed Funds Rate Falls, 30-Year Fixed Mortgages Rise

David Kosmecki | February 28, 2008 in Uncategorized | Comments (0)

Federal Reserve Chairman Ben Bernanke testified to Congress Wednesday, alluded to further rate cuts to support an ailing U.S. economy.

Already, the Federal Reserve has lowered the Fed Funds Rate by 2.250% since September 2007.

The graph at right comes from the Wall Street Journal and it highlights a very important correlation between the Fed Funds Rate and mortgage rates.

The correlation is that there is no correlation.

Since the Fed began cutting rates five months ago, mortgage rates on 30-year fixed mortgages are higher, as are jumbo mortgage rates. ARMs, however, are lower.

Especially noteworthy is how 30-year fixed rates started to spike as the Fed cut rates through January. Another half-point cut in March could have a similar impact.


Market Update – February 27, 2008

David Kosmecki | February 27, 2008 in Uncategorized | Comments (0)

Risks favor: Floating into Bernanke Testimony

Current Price of FNMA 5.5% Bond: $98.97, +16bp

Mortgage Bonds popped a bit higher on a weaker than expected Durable Goods Report for January. The typically volatile indicator showed a -5.3% reading, below expectations of -4.0%. Adding further weakness was a downward revision to the prior month’s reading from 5.2% to 4.4%.

New Home Sales

will be reported at 10am ET and it could possibly be a market mover. However, the financial markets are now bracing themselves for Fed Chairman Ben Bernanke, who will deliver his sem

i-annual monetary policy testimony before Congress. Bernanke will speak to the House Financial Services Committee at 10:00am ET and before the Senate at the same time tomorrow. All eyes and ears will be on Mr. Bernanke as he discusses the economy, inflation, and a plunging US Dollar that has just set record lows against the Euro and other rival currencies. A weaker Dollar results in higher commodity prices that could eventually lead to higher inflation.

Big Ben may attempt to paint a bit of a rosy picture in order to justify the barrage of Fed cuts we have seen of late. As you know, bond prices have reacted negatively to the cuts as bond investors fear the inflation that will erode the fixed return they receive, due to the stimulated economy from the cuts. Remember that it often takes 6 – 9 months for a Fed action to filter its way through the markets and have an effect on economic conditions. The first in the latest series of cuts was only 5 months ago, so we may have yet to see the impact of any of the 225bp worth of cuts. Additionally, the President’s stimulus package will add to the mix.

Speaking of inflation, the Wall Street Journal has a headline today saying that inflation could be a bigger problem than many think. It looks like they are starting to whistle our tune as we wrote this verbatim within our forecast for 2008. Nice to see them reading our material.

Technically, Mortgage Bonds are looking a little prettier after successfully bouncing higher off of the 200-day Moving Average yesterday. But the positive signs could sour quickly should Bernanke surprise the markets, although as we mentioned earlier – he may be more dovish in his comments. For now we will continue to float and see if Big Ben does indeed help prices improve – but we will be ready to lock in this rapidly changing, volatile environment.


How Is Housing Doing? It Depends Who You Ask.

David Kosmecki | in Uncategorized | Comments (0)

The OFHEO paints a different picture from the Case-Shiller Index

Yesterday, the Office of Federal Housing Enterprise Oversight released its fourth-quarter housing data.

The OFHEO report color-coded each state according to its annual price changes. The states shown in red lost value, and everyone else gained. Overall, the OFHEO measured a 0.8% national increase.

Also hitting the wires yesterday was the Case-Shiller Home Price Index.

This report focuses on the 20 largest metropolitan statistical areas in the United States and painted a much more grim outlook for housing. According to Case-Shiller, prices declined 8.9% nationally.

Both reports are imperfect but one notable difference is that the OFHEO report measures all 291 MSAs in the United States and its data showed that two-thirds of them appreciated last year.

Once again, this just reminds us: real estate is a local phenomenon. Every market is unique with its own price trends, independent from the rest of the country.


Market Update – February 26, 2008

David Kosmecki | February 26, 2008 in Uncategorized | Comments (0)

Risks favor: Cautiously Floating with prices above 200-day MA

Current Price of FNMA 5.5% Bond: $98.47, -6bp

Mortgage Bond prices are modestly lower, but have shown some positive signs, as they have bounced off the 200-day Moving Average this morning. A look at the chart shows how this pivotal marker has been tested a few times lately and prices have managed to hold themselves above it. So far today, the Bond has dropped down to touch exactly on the 200-day MA before bouncing higher.

The Overall Producer Price Index (PPI), a measure of inflation at the wholesale or producer level, swelled by 1.0% during January, which was more than double expectations of 0.4%. This hot reading left year over year Overall PPI at a smoking 7.4%, which is the fastest rate of year over year wholesale inflation since 1981. Meanwhile, the Core PPI, which excludes energy and food prices, also surged by twice expectations to 0.4%, bringing the year over year Core PPI rate to 2.3%. The steaming PPI data does not bode well for this Friday’s Core Personal Consumption Expenditure (PCE) report, and also may put further pressure on the Fed as they try to stimulate the economy in an effort to prevent a deep recession without simultaneously fueling inflation. But PPI does not always translate to higher consumer prices because the additional cost can be taken out of profit margins. But with such a beefy rate of increase, it is likely that some of these costs will wind up being passed on to the consumer, causing higher levels of inflation.

Consumer Confidence

was reported at 75.0, which was much lower than expectations of 82.0. This report is in line with recent economic reports, which suggest the economy has indeed slowed some.

At 12:15pm ET, Federal Reserve Governor and voting FOMC member Donald “I Scream” Kohn will speak on the topic of “US Economy and Monetary Policy”.

The market has been reacting to Fed speak of late, so stay tuned.

Mortgage Bonds are trading at an important juncture. Should prices move convincingly below the 200-day MA, it could signal a trend to higher rates ahead. However, should prices make a confident bounce higher, the Bond may regain some of its recent losses. We will cautiously float and give the Bond a chance to bounce off of the 200-day MA.


Real Estate Term: Earnest Money

David Kosmecki | in Uncategorized | Comments (0)

When a buyer and seller reach agreement on a home sale, the buyer typically puts a small amount of money into a trust account.  This up-front deposit is more commonly known as earnest money.

When a buyer and seller reach agreement on a home sale, the buyer typically puts a small amount of money into a trust account.

This up-front deposit is more commonly known as “earnest money”.

A sales contract’s earnest money requirement will vary from contract to contract. It can be as high as 10 percent of the purchase price and could be as low as $500; earnest money is a negotiable item between buyers and sellers.

Some factors that can influence earnest money amounts include:

  • Market conditions: Stronger markets often call for more earnest money
  • Buyer economics: First-time buyers often give less earnest money
  • Seller psychology: Skeptical sellers often ask for more earnest money

No matter how large or how small, however, earnest money is supposed to give the seller a sign of good faith that the buyer wants to purchase the home.

To this end, earnest money can be forfeited if the buyer later “backs out” of the deal, or breaches the terms of the purchase agreement. Breaching, however, is infrequent.

This is because most purchase contracts are written with buyer-focused “outs” called “contingencies”.

A typical contingency is that the seller must provide a clean title policy to the buyer, or that the buyer must secure financing prior to given date, or that the home must pass a satisfactory inspection.

If any of these contingencies cannot be met, the purchase agreement is voided and earnest money returned to the buyer.

When contingencies are met, however, earnest money becomes a deposit and is applied directly to the buyer’s bottom line at settlement. If the buyer is expected to have $50,0000 for the closing, for example, the true bottom line is $50,000 minus the earnest money deposit.

Earnest money customs vary from state to state, city to city, and even locale to locale. Be sure to ask your real estate agent and/or real estate attorney for professional counsel before signing purchase contracts.

The earnest money you save may be your own.


Market Update – February 25, 2008

David Kosmecki | February 25, 2008 in Uncategorized | Comments (0)

Risks favor: Locking

Current Price of FNMA 5.5% Bond: $98.88, -16bp

Mortgage Bonds are drifting lower after failing to break above resistance at the 100-day Moving Average late last week. The high volatility continues and the recent sharp drop illustrates why it is prudent to be overly cautious, which means sometimes sacrificing small potential upside gains to protect against the large losses that others have been subject to.

Existing Home Sales for January is the only economic report set for release today. The market is expecting a reading of 4.80 Million, down slightly from last December's sales of 4.89 Million.

The report could shake the markets if it wildly misses expectations.

Some Fed speak today as both Fed Governor and FOMC voting members Randall “The Wolf” Kroszner and Frederic “Fast Freddy” Mishkin talk later today. Mr. Mishkin’s speech, at 3:30pm ET, will likely catch the eyes and ears of the market as the topic is “Stabilizing Inflation”. The market has reacted rather negatively to Richard “Loose Lips” Fisher’s remarks on inflation as of late, so we will be watching for a potential market reaction later today.

The Bond is trading in a wide 115bp range between a ceiling of resistance at the 100-day MA and a floor of support at the 200-day MA. It appears as though prices are destined to retest support at the 200-day MA, presently 66bp beneath present levels.


Looking Back And Looking Ahead : February 25, 2008

David Kosmecki | in Uncategorized | Comments (0)

It’s a big week for mortgage markets (again) and that should cause rates to fluctuate wildly (again).

The volatility we’ve seen since December has not been for the faint of heart. Even this past Friday, as mortgage rates were poised to end the week lower, a late-afternoon stock market rally reversed it.

In the last 45 minutes of trading, the Dow Jones Industrial Average swung 225 points. Mortgage rates rose, too, peeving Americans who planned to go house-hunting over the weekend.

This week, mortgage rates will take direction from a handful of economic reports including the Federal Reserve’s preferred inflation marker — the Personal Consumption Expenditures report. PCE is a Cost of Living index.

The biggest story, though, is Fed Chairman Ben Bernanke’s Wednesday testimony to Congress.

While he’s not expected to say “the economy is in a recession”, or “the economy is doing just fine”, markets expect Bernanke to give guidance about how far the Fed would cut the Fed Funds Rate to stimulate the economy.

The Fed Chairman won’t say outright, “The Federal Reserve intends to lower the Fed Funds Rate to 1.000%”. Therefore, it will be the guessing of how low the Fed will go that should cause markets to buck.

But remember: Cuts to the Fed Funds Rate do not necessarily lead to lower mortgage rates. To the contrary: Since the Fed started cutting the Fed Funds Rate in 2008, mortgage rates have moved higher. As they cut, though, ARM interest rates should become more attractive versus fixed-rate mortgage rates.

This is because additional cuts the Fed Funds Rate will fan inflation fires longer-term and inflation erodes the value of long-term mortgage bonds.


Market Update – February 22, 2008

David Kosmecki | February 22, 2008 in Uncategorized | Comments (0)

Risks favor: Carefully Floating

Current Price of FNMA 5.5% Bond: $99.53, +9bp

The battle at the 100-day Moving Average resistance level continues. Yesterday, the Bond soared above this ceiling early in the day only to be pushed lower to close beneath this lid. And this morning, prices were trading a whopping 28bp higher before the Bond once again retreated back below this strong ceiling. This type of trading action tells us the 100-day MA is a strong resistance level and may be prevent the Bond from improving much further.

There are no economic reports scheduled for release today, but hold onto your hat, because at 1:30pm ET today, Dallas Fed President and voting Fed member Richard 'Loose Lips' Fisher is scheduled to talk. You may recall that it was Fisher’s concerning inflation comments back on February 7th which completely shook the Bond market and ignited a multi-week sell off in Bond prices. On a day with no news, should he uncontrollably blurt out any more strong words on inflation, the market may move more sharply than usual.

Yesterday’s alert avoided some midday lender re-pricings and worse pricing this morning, but on new transactions, we can carefully float and see if the Bond can break above resistance at the 100-day MA. We can’t overemphasize how volatile and quickly prices have been moving, so keep a finger near the lock trigger. Should prices be forced lower, the next clear floor of support lies at the 200-day MA, presently a big 118bp beneath current levels.