Archive for June, 2009

With The Year Half-Over, How Accurately Did Economists Predict 2009

David Kosmecki | June 30, 2009 in Uncategorized | Comments (0)

You can't predict the economyAt the start of the year, the “experts” made a lot of predictions about the U.S. economy and what to expect in 2009.

And nobody predicted just how big the government’s stimulus package would be.

Now, on June 30, with the year officially half-over, it’s as good a time as any to remember that people are much better at interpreting the past than predicting the future. Economists can make educated guesses about the future, but they’re guesses nonetheless.

It’s like watching the Weather Channel. A meterologist can look at the data and say it’s going to rain next week, but the forecast is never 100%.

So far this year, mortgage rates have been up and down, credit availability has been higher and lower, and home prices have varied immensely from neighborhood to neighborhood. These are not the types of predictions we get from the pundits.

There’s another 6 months until 2010 and there’s no reason to expect the current trends to change.

The world is unpredictable and so is the U.S. economy. Therefore, consider making your personal finance decisions based on the information at hand today instead of on an educated guess about the future.

After all, the weatherman’s been wrong before.

What’s Ahead For Mortgage Rates This Week : June 29, 2009

David Kosmecki | June 29, 2009 in Uncategorized | Comments (0)

The Fed Funds Rate is 0.000 to 0.250Mortgage markets improved last week on the heels of benign economic data and a non-inspired press release from the Federal Reserve.

Aside from trader momentum, 3 market-moving events helped set the pace last week:

  1. Housing data hinted at strength
  2. Jobless data showed softness
  3. The Fed said growth appears on-track

The combination of the three created volatility that — for just the second time in the last 8 weeks — worked in favor of rate shoppers.

Mortgage rates changed a lot last week, but they trended lower overall.

Already, however, markets are looking ahead to this week’s holiday-shortened trading sessions. There is a ton of data to be released and as the week progresses, the ever-falling market volume could create some wide swings in mortgage rates.

The mystery is whether rates will be getting better or worse.

On Tuesday, markets will get Consumer Confidence and Case-Shiller Index data at 9:00 AM ET. The Case-Shiller Index is a home price measurement and it always gets a lot of press. Strength in either number should lead mortgage rates higher. Weakness should help rates ease.

Then, on Wednesday, Crude Inventories should take the spotlight. Normally, we don’t watch this data point too closely but with gas prices easing last week, rising oil supplies could mean even lower gas prices ahead. This is anti-inflation and a good sign for mortgage rates.

And lastly, on Thursday, the government releases June’s jobs report. This report is always a market-mover — good or bad. And with trading volume low by Thursday, mortgage rates should move more than “normal”.

Be ready to lock at a moment’s notice this week. Mortgage rates continue to be volatile and the holiday-shortened week won’t do anything to counter that. If you’re the nervous type, when you see a rate that fits your budget, consider locking it in.

In Another Good Sign For The Housing Market, Builders Are Clearing Out Their Inventory

David Kosmecki | June 26, 2009 in Uncategorized | Comments (0)

New Home Supply May 2009If you only saw the headlines this week, you may have missed another positive sign in the housing market.

According to the Census Bureau, the supply of newly-built homes for sale fell to 10.2 months in May, its lowest level in 10 months.

Unfortunately, the New Homes Sales story wasn’t positioned as a positively by the press. Instead, the most common headline on the data read “New Home Sales Dip 0.6%” with many journalists referring to the figures as “weak” or “disappointing”.

Only, that’s not completely true.

See, one of the nice elements of the monthly New Home Sales report is its footnote section in which the Census Bureau talks about statistical Margin of Error and that section tells us that if the Margin of Error is larger than the measurement itself, the report is useless.

And that’s exactly what happened in May.

New Home Sales were measured to have fallen by 0.6 percent but that data point was dwarfed by its 17.8 percent Margin of Error, The “headline data”, in other words, was just a guess.

The press reported it anyway.

Nonetheless, as it relates to the economy, falling home inventories are a positive. Having 10-plus months of homes on the market is still high historically, but a definite improvement over what we saw earlier this year.

So long as low mortgage rates and aggressive pricing persists from builders, we expect even less supply in the months ahead.

A Simple Explanation Of The Federal Reserve Statement (June 24, 2009 Edition)

David Kosmecki | June 24, 2009 in Uncategorized | Comments (0)

Reviewing the June 24 2009 FOMC AnnouncementThe Federal Open Market Committee voted to leave the Fed
Funds Rate
unchanged today within its target range of 0.000-0.250

Fed also reiterated its plan to support the mortgage market to the tune
of $1.5 trillion.

In its press release,
the FOMC noted that the U.S. economy is not slowing with the same speed
versus just two months ago and that financial markets, in general, are

These are two signs
that the country may be emerging from recession, if it hasn’t

The news isn’t all good,
however. The Fed made a point to highlight the potential
hazards the nations faces on its path to economic

  • The prices of energy
    and commodities have been rising
  • Job
    losses are still mounting
  • Businesses are reducing
    capital expenditures

Also in its statement, the Fed acknowledged a plan to
hold the
Fed Funds Rate near zero percent “for an extended period” and a
re-commitment to the U.S. Treasury and Mortgage Bond

Market reaction to the Fed’s press release has been

With no new stimulus and
no new “tools” to spur the economy unveiled, Wall Street is business as
usual. Mortgage rates are unchanged post-FOMC

The FOMC’s next scheduled meeting is August 11-12,

3 More Signs Of A Strengthening Housing Market

David Kosmecki | in Uncategorized | Comments (0)

Existing Home Sales and Median Sales Price May 2009The housing market got another dose of good news yesterday.

According to the National Association of REALTORS, the number of homes sold in May increased for the third straight month and the national housing supply fell by 5 months.

Furthermore, first-time home buyers are accounting for nearly one-third of the market activity.

But, before we declare a bottom in housing, it’s important that we remember the First Rule of Real Estate:

All Real Estate Is Local

National housing statistics like Existing Home Sales are painted with a very broad brush. They lump disparate locales such as San Francisco and Seattle into one sample set and don’t account for regional differences, let alone neighborhood ones.

Furthermore, getting down to a city-by-city, or even street-by-street basis, we can always find homes that are selling quickly and home that are languishing. Real estate is highly local and subject to countless influences.

That said, the national data isn’t completely useless. From the patterns, we can infer that low mortgage rates, ample home supply and available tax credits are providing a quantifiable boost to the broader real estate market.

And based on recent pending sales data, we can expect June and July’s Existing Home Sales figures to be similarly strong to May.

Therefore, if you’re in the market for a new home right now — or plan to be soon — be conscious of home inventory levels in your target neighborhoods. Fewer homes on the market usually means less ability for buyers to negotiate and that leads to higher sales prices.

Plus, the NAR is reporting buyer activity up 10 percent from last year.

The housing market may not be fully recovered in every housing market just yet, but in studying the data, a lot of the pieces appear to be falling into place.

Like To Play It Cautious? Consider Rate Locking Ahead Of Wednesday’s Federal Reserve Meeting.

David Kosmecki | June 23, 2009 in Uncategorized | Comments (0)

The Fed Funds Rate since June 2007The Federal Reserve begins its scheduled two-day meeting this morning.

It’s one of 8 scheduled meetings for the Federal Open Market Committee this year.

When the FOMC meets, it discusses the financial and economic conditions around the country and, when appropriate, the group makes new
policy meant to speed up or slow down the economy.

The main tool for reaching this goal is the Fed Funds Rate and, earlier this year, the FOMC lowered it to “near-zero” percent in an attempt to stimulate growth.

But the Fed has other tools at its disposal, too, not the least of which is its $1.25 trillion pledge to the mortgage markets.

Now, if you’ll remember, the Fed made that pledge in two parts:

  • Part 1 came in November 2008 for $500 billion
  • Part 2 came in March 2008 for $750 billion

After each announcement, mortgage rates reflexively dropped and stayed low for a period of a day or two. Then, fears of inflation set in on Wall Street, causing mortgage rates to pop back up because inflation is a mortgage-rate killer.

The Fed isn’t expected to increase its mortgage market commitment this week, but because mortgage rates are above the government’s “target zone”, it’s possible that the FOMC uses its post-meeting press release to give markets some guidance and its plan for the next several months.

A statement like this could alternately raise mortgage rates or lower them, depending on what the Fed says.

It’s for this reason that floating a mortgage rate through tomorrow afternoon is extremely risky. The Fed could say nothing about mortgages, or it could say a lot. Either way, a small, quarter-percent change in mortgage rates can add tens of thousands of dollars to the lifetime cost of a person’s pending home loan.

The Fed’s press release hits the wires at 2:15 PM ET Wednesday. If
you’re the cautious type, consider locking your mortgage rate prior to
its release.

What’s Ahead For Mortgage Rates This Week : June 22, 2009

David Kosmecki | June 21, 2009 in Uncategorized | Comments (0)

Mortgage rates are riding a roller coasterMortgage markets finished out the week unchanged last week but that’s not to say that mortgage rates stayed flat.

From day-to-day, mortgage rate shoppers were on a veritable roller coaster.

  • Monday and Tuesday, rates dipped
  • Wednesday and Thursday, rates surged
  • Friday, rates retreated

Overall, conforming mortgage rates carved out a half-percent range this week. This caused fit for home buyers in need of a rate lock, and homeowners interested in refinancing.

Rates changed quite a bit from day-to-day, and even from hour-to-hour at times.

This is the same brand of mortgage rate volatility we’ve seen all year and it’s expected to continue through at least this week, too. There are a number of market-moving events set to hit.

The event with the largest potential impact is the Federal Open Market Committee’s two-day meeting.

Scheduled for Tuesday and Wednesday, the Bernanke-led Fed is not expected to raise the Fed Funds Rate upon its adjournment but the markets are more interested in what the Fed says than what it actually does.

If the Federal Reserve says that long-term inflation is a concern, mortgage rates should rise because inflation often leads rates higher. Similarly, if the Fed says the economy is recovering quicker than expected, mortgage rates should rise on that story.

The Fed adjourns at 2:15 PM Wednesday so watch for big market swings around that time.

In addition, there’s some big data points due out this week including the Existing Home Sales and New Home Sales reports, plus the Personal Spending and Consumer Sentiment survey.

Each of these reveals the psychology of the U.S. consumer and consumers with dollars to spend move the economy forward. If the reports are overwhelmingly positive, mortgage rates should rise as a result. On the other hand, if the data is weak or non-convincing, mortgage rates should ease.

How To Fight Mortgage Rate Volatility

David Kosmecki | June 19, 2009 in Uncategorized | Comments (0)

Initial Jobless Claims for week ending June 13 2009Mortgage rates are suffering through another volatile week, causing problems for rate shoppers and home buyers.

After falling Monday and Tuesday, mortgage rates surged Wednesday and Thursday. The momentum higher appears to be carrying into the weekend, too.

There are several data-related reasons for the mortgage market’s spastic activity this week:

  1. Unemployment claims fell
  2. Leading Economic Indicators rose
  3. Inflation readings are tame

But while each of the data points above fueled mortgage rate volatility, it’s not the data that’s making markets move the most. It’s the psychological impact of the data.

See, data tells us about the past. It measures and reports on what’s already happened. Unfortunately for rate shoppers, mortgage markets are not made on data from the past — they’re made on the expectations of what will happen next.

Mortgage rates reflect Wall Street’s opinion of the future.

In reading the papers and watching the news, you’ll notice ongoing debate about the U.S. economy. It’s unclear whether the recession is worsening or improving.

On one hand, data is weak and sub-optimal. On the other hand, the data is not nearly as weak as it was 6 months ago and, in some cases, it’s strong. To some, this is a signal that a recovery is already underway.

Or, it may just be a blip.

We can’t be certain in which direction the economy is headed and the same can be said for mortgage rates. Because sentiment is changing so often, though, it forces us to be on our toes.

The last few months have been marked by large mortgage rate swings across small windows of time. A rate that’s offered in the morning, for example, is rarely available in the afternoon. Therefore, do your rate shopping in a compressed period of time and be ready to lock your rate at a moment’s notice.

When markets move, they tend to move quickly.

Adjusting For Cost Of Living Differences After A Non-Local Move

David Kosmecki | June 18, 2009 in Uncategorized | Comments (0)

Every town in America has its own Cost of Living

Moving to a new metropolitan area requires adjustments. There’s new streets to learn, new weather patterns to get used to, and new social cultures to assimilate.

There’s also new costs.

Just like home values vary by area, so does the Cost of Living. To visit a doctor in Chicago, as an example, costs a person more than to visit a similar-type doctor in Des Moines.

Cost of Living adjustments can’t be ignored between two cities because it changes a household’s budget.

And while it’s a challenge to know exactly how far your dollar can stretch in a new town, hosts a helpful Cost of Living Comparison Calculator to make the math a little easier. With categories such as dry cleaning, groceries and beauty salon, the calculator goes extra deep into the typical costs to a household, and can help families to make more realistic budgets.

The calculator also shows the equivalent household income between any two metropolitan areas.

The Double-Edged Sword That Is Rising Housing Starts

David Kosmecki | June 17, 2009 in Uncategorized | Comments (0)

May 2009 Housing Starts

After being range-bound since the start of the year Housing Starts unexpectedly jumped in May, surprising analysts and Wall Street.

It’s the latest in a string of housing-related data that suggests a real estate recovery is already underway.

Housing Starts is an important statistic for a number of reasons, but to homebuyers and home sellers, its immediate impact is on home inventory.

Home values are based on supply and demand. When the demand for homes exceeds the supply, values tend to rise. Conversely, when supply exceeds demand, values tend to fall.

When Housing Starts increase as they did in May, therefore, unless there’s a corresponding increase in demand, home prices get pressured downward.

Lately, that off-setting demand appears to be present.

With home affordability near record-high levels, mortgage rates well below historical averages, and the first-time homebuyer tax credit in place, Existing Home Sales are up 16 percent on a “raw numbers” basis versus last month and home supplies are lower versus last year.

Rising Housing Starts can a double-edged sword to a recovering economy. It’s a strength signal that builders are more optimistic right now, but too much optimism can lead to a glut of unsold homes that pushes housing back to the brink.

So long as demand outpaces supply, however, inventories should reduce and values should move higher.