U.S. Treasuries rose after data on housing, jobs, prices and manufacturing raised concerns about the U.S. economics’ strength. We broke through the 103 barrier on July FN30 3s yesterday (and subsequently reversed almost full course today, keep reading to the end) as the data suggested the Fed would likely keep its monetary policy accommodative.

Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas.

Initial claims jumped 32,000 hitting the largest rise since November of last year. Meanwhile the Philadelphia Fed Index reported that factory activity in the mid-Atlantic contracted in May to the lowest levels in almost a year. To add to the drama, 30 minutes prior to Dallas Federal Reserve President Richard Fisher’s speech indicating a clear victory in the housing sector and suggesting eliminating the purchases of Treasuries and MBS by year end, the Commerce Department actually reported that U.S. housing starts fell by 16.5% in April. And lastly, CPI fell short again of the Fed’s 2% target as the index came in at -0.4% in April. CPI now hovers around 1.7%, down from 1.9% year-over-year in March and down 2.3% from April 2012. Stabilization in the Japanese government bond market also helped add to the support. U.S. Treasuries rallied on weaker data and if economic numbers continue to roll in light, Treasury yields could move back to the lower end of their recent range.

Italian and Spanish debt schedule

Across the pond, Italian bonds are set to fare better than Spanish debt as marked underperformance by Spain relative to Italy is pushing investors to believe Spain is more likely to rekindle the region’s debt crisis. Investors are demanding a 30 basis point premium to hold Spanish bonds over Italian as the political uncertainty in Italy has been resolved.

The threat that Italy and Spain, the euro zone’s third and fourth largest economies, posed to the euro zone has been largely subdued as the European Central Bank pledged to save the euro last July. And even though the ultra-easy monetary policies are luring back yield-hungry investors, many still prefer Italy’s debt market over Spain’s because of liquidity concerns and higher credit rating. The risk of a downside is greater in Spain, as Italy is less likely to fall out of investment grade. Moody’s, the most aggressive of the three rating agencies, affirmed Italy’s Baa2 rating with a stable outlook easing concerns about future downgrade while Spain is rated one notch above junk with a negative outlook in place since last October. Rome has raised 65% of the year’s expected issuance while Spain is still hovering around 50%.

MBS opened this morning opened lower as the late day sell-off lingers. Sentiments by San Francisco Fed President Williams regarding asset purchase conclusions by year end seemed to unravel the positive effects of weak data and low supply assuming you’re in the MBS business. As we move through the morning, 30 year prices continue to sell off as spreads are a few ticks wider on lower stacks and originations are thin. On the equities front, the S&P and the Dow continue to rally at +0.5% at 1,658 and +0.41% at 15,295 respectively. Overnight, stocks were modestly higher as the recent Fed suggestions dampened the mood. Hong Kong was closed on Friday for holiday while other global markets veered only slightly higher. Major European indexes are 0.3% higher after Asian Markets were better 0.6% in the Nikkei 225. And on the economic front, consumer sentiment is up substantially, which should contribute widely to increased spending and trickle to stimulating local economies. Closing with MBS strikes from our trade floor, July FN30 3s are trading at 102-12 (-0.46875), July FN15 2.5s are trading at 103-11 (-0.21875), July GN30 3s are trading at 103-24+ (-0.578125) and July G230 3s are trading at 103-22 (-0.578125).

Economic Calendar

Next week is light in economic data in comparison to this week. On Wednesday, May 22nd, Existing Home Sales will update the index on the level of sales of existing home sales. The report is considered a decent indicator of housing activity. Investors watch this as this report can provide insights on economic momentum. Also on Wednesday, May 22nd, FOMC Minutes will be released from the previous meeting. This is a market mover as investors dissect every word looking for clues to policy, opinions and economic analysis. On Thursday, May 23rd, New Home Sales will report the level of new privately owned one-family houses sold and for sale. Investors watch this as home sales tends to have a powerful multiplier through the economy. And Friday, May 24th, Durable Goods Orders will release the dollar volume of orders, shipments and unfilled orders of durable goods. Durable goods orders tell investors what to expect from the manufacturing sector, a major component to our economy.  Investors watch this as rising equity prices thrive on growing corporate profits which in turn stems from healthy economic growth. 

ABOUT THE AUTHOR

Samuel Scott Financial Group is proud to be a part of Opes Advisors and offer clients a wide variety of home loan options and industry leading processing.

Marcus Lam manages the Secondary Marketing for Opes Advisors, a firm that brings integrated wealth management and mortgage services into one holistic approach. A financial expert with extensive experience in the real estate industry, Marcus offers unique insights and analysis of local and global market conditions. Every Friday he shares his succinct and candid take on the latest economic news and what he sees in the forecast.

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It’s a slow news week so I figured I’d mix it up a little and provide a write-up on a Bank of America, Merrill Lynch analysis of the housing market. As home prices continue to climb and is housing construction on the rise, many people are beginning to wonder if this housing recovery is too good to be true. There are 3 main concerns: 1. the gain on demand owes to investors and international buyers, which suggests it is fleeting, 2. the Fed’s QE3 is creating another housing bubble and 3. the home building industry is not prepared for a gain in construction which explains the fall in sentiment.

Focusing on the first factor, investors have played a key role in spurring the housing recovery. In markets like Phoenix and Atlanta, investors have made up a disproportionate share of sales by buying properties in bulk. By doing so, they’ve cleared out excess inventory and stabilized the market, prompting primary buyers to return. Investor concentration held at 22% over the last three years while international buyers made up 2%, holding true to the past 3 year average. International buyers have a higher market share in major metropolitan cities such as Manhattan and San Francisco. Primary home buyers still make up the largest share of the market however, the tight credit conditions has resulted in a larger share of all-cash purchases. Over 20% of buyers who are relocating and 60% of second home purchases have been all cash. Buyers of new construction homes are more reliant on financing so we see a greater correlation between mortgage applications and new home sales.

Many are looking at the Fed’s direction for possibly creating another bubble. There is little evidence to suggest this as the term “bubble” is used to describe an asset priced above a level determined by economic fundamentals. For starters, homeowners were made painfully aware after the 33% plunge in prices nationally the downside risk of real estate. Additionally, with the amount of investor buying that I discussed above, markets are beginning to stabilize as we’re seeing a greater percentage of people believe in the housing market again. And lastly, considering how tight the credit market has been, the quality of borrower has improved dramatically in today’s mortgage market. With CoreLogic home prices increased at an accelerating rate in March at +1.9% month-over-month translating to a 10.5% gain year-over-year, we’re seeing a slower price appreciation.

And lastly, recent data showing spending on home improvements has declined sharply, however we’re seeing a 9.1% increase in retail sales on building materials and Home Depot reported an increase in activity at the turn of the year. The expectation is that the Census data will ultimately be revised higher to reflect the recent sales data. However, we’ve also seen an increase in input costs as the price of lumber and cement have increased putting construction costs at a +5.5% gain year-over-year. The good news is that there’s a positive correlation between new home sales and construction cost inflation indicating a stronger housing market and greater demand. With the forecasted price improvements and the stability in the market, there are positive signals to believe in the housing recovery.

Today Fed Chairman Ben Bernanke broadened the Federal Reserve’s oversight beyond big banks and now monitors financial institutions as the shadow banking system continued to pose a threat to financial stability. In a wide-ranging speech explaining the Fed’s role in monitoring the stability of the banking system, Bernanke also stated that the central bank would watch asset markets for signs of excessive risk taking. On the budget side, U.S. defense spending is down which is a major factor in the 23 percent the deficit has dropped this first part of 2013. April usually sees an average surplus of $49.7 billion whereas this year the April surplus was at $59.1 billion. And lastly in our MBS world, markets have sold off in dramatic fashion. And lastly in our MBS world, futures have sold off in dramatic fashion. July FN30 3s are trading at 102-25 (-0.59375), July FN15 2.5s are trading at 103-25+ (-0.265325), July GN30 3s are trading at 104-14 (-0.625) and July G230 3s are trading at 104-11 (-0.625).

Economic Update

Next week we have a busy week on the economic calendar. On May 13^th, Retail Sales will measure the total receipts of retail stores. Consumer spending accounts for more than two-thirds of the economy so investors watch this closely to see where we are headed. On May 14^th, International Trade will update the index in import and export prices. Changes in these levels are a valuable gauge of inflation here and abroad and can directly impact our competitiveness overseas. On May 15^th, Producer Price Index (PPI) will update the price index of goods at the wholesale level. PPI measures prices at the producer level so it can provide a measure of inflation before it is passed to the consumer. Also on May 15^th, Industrial Production will update the fixed-weight measure of the physical output of our nation’s factories, mines and utilities. Investors watch this as it acts as the pulse of our economy. On May 16^th, Consumer Price Index (CPI) will measure a fixed basket of goods at the consumer level. This is essentially the most widely accepted inflation calculator. And lastly, also on May 16^th, Housing Starts and Building Permits will provide the number of residential units on which construction is begun each month. Investors watch this for the ripple effect as real estate tends to have a powerful multiplier effect through the economy. 

ABOUT THE AUTHOR

Samuel Scott Financial Group is proud to be a part of Opes Advisors and offer clients a wide variety of home loan options and industry leading processing.

Marcus Lam manages the Secondary Marketing for Opes Advisors, a firm that brings integrated wealth management and mortgage services into one holistic approach. A financial expert with extensive experience in the real estate industry, Marcus offers unique insights and analysis of local and global market conditions. Every Friday he shares his succinct and candid take on the latest economic news and what he sees in the forecast.

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The U.S. Federal Reserve on Wednesday announced it would continue buying $85 billion per month in bonds helping keep interest rates low in the continued attempt to spur growth. The Fed expressed concerns about the drag from Washington’s belt tightening and described our economy’s growth as moderate. This closely mirrored its March decision to maintain the pace of its purchases as employment is still too high and inflation remains under the 2% target. Inflation has steadily been coming down as the latest round of data indicated a rise of just 1.1%, the smallest gain in 3.5 years.

Analysts had expected the Fed to buy a total of $1 trillion in Treasury and MBS in its third round of quantitative easing (QE3) however even the talk of tapering off the current pace has been pushed back. It’s possible we won’t see any tapering until 2014 as economic growth for Q2 of this year is expected to be weaker than Q1. Meanwhile the housing market continues to show signs of strength with home prices posting their biggest yearly gains since 2006. However, the industrial sector showed near zero gains in April and inflation continues to decline. It’s important to keep in mind that the Fed strategy is not set in stone as policymakers could lower the unemployment threshold to signal when rates will finally increase.

The European Central Bank (ECB) cut rates by a quarter percentage point. This is the first change since July 2012.

Across the pond, the European Central Bank (ECB) cut interest rates for the first time in 10 months and held out the possibility of further action to support the recession-hit euro zone. The ECB responded to the drop in inflation and rising unemployment by setting rates at a record low 0.500 percent. ECB President Mario Draghi promised to provide as much liquidity as euro zone banks need well into next year to help smaller companies get access to credit. The ECB is ready to move into further action and cut its deposit rate to negative meaning it would charge banks to hold their money overnight therefore encouraging banks to lend out rather than hold. Despite this, few economists expect this to actually make a decisive difference as this move mainly provides support for banks and would only boost economic confidence marginally. The common notion is that if banks are lending at all, they’re charging companies and households more for loans because of higher funding costs and credit risk. The largest hurdle right now is that lack of a functioning asset-backed-securities market in the euro zone which helps banks offload credit risk to their investors and boost capital and liquidity. The ECB wants to revive the ABS model and pave the way for quantitative easing. 

This morning, an unexpectedly strong U.S. jobs report pushed stock markets higher as data indicated the world’s largest economy is not slowing as quickly as some had feared. The S&T is up 1.17% at 1,616 and the Dow is up 1.06% at 14.988. Overnight stocks were contained ahead of U.S. payroll data with some markets, i.e. Japan, closed again.

On the jumbo-tron, major European indices are higher 1.4% after the Hang Seng added 1/10. U.S. Treasury prices fell and yields made their biggest one day jump since January as the unemployment rate fell to a four year low at 7.5%. Economists were expecting unemployment to hold at 7.6%. The biggest news to the drop in unemployment is that unlike last month, the data this month reflects an increase in employment versus those leaving the workforce. From our Opes trade floor, the inverse relationship is hitting MBS futures hard. July FN30 3s are trading at 103-18 (-0.515625), July FN15 2.5s are trading at 103-28 (-0.25), July GN30 3s are trading at 105-08 (-0.546875) and July G230 3s are trading at 105-03+ (-0.546875).

Economic Calendar

Next week is incredibly light on the economic calendar. On Thursday, May 9th, Initial Claims will update the number of individuals who filed for unemployment insurance for the first time. Jobless claims are an easy way to gauge the strength of the job market and investors can gain a sense on where the economy is headed. 

ABOUT THE AUTHOR

Samuel Scott Financial Group is proud to be a part of Opes Advisors and offer clients a wide variety of home loan options and industry leading processing.

Marcus Lam manages the Secondary Marketing for Opes Advisors, a firm that brings integrated wealth management and mortgage services into one holistic approach. A financial expert with extensive experience in the real estate industry, Marcus offers unique insights and analysis of local and global market conditions. Every Friday he shares his succinct and candid take on the latest economic news and what he sees in the forecast.

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So you’ve made your down payment on your new home, now what? How are the mortgage payments decided and when can you expect to pay the first payment? Kim Churchill of Samuel Scott Financial Group breaks down what to expect from monthly mortgage payments and how you might just be able to pay off your mortgage as much as 7 years earlier with some simple financial planning and a strong backup plan.

Mortgage payments are broken down into four parts, referred to as PITI.

• Principal- is the amount borrowed for the home purchase. Making a larger downpayment can essentially lower your principal and consequently your monthly payments.
• Interest- this is a charge to use the lenders funds and is determined by a percentage of the principal. This number is directly tied to the interest rates.
• Taxes- these are property taxes assessed by the local government on the value of your home and property. Usually held in an escrow account, these funds are used by the municipalities to fix and build around the community.
• Insurance- is needed to protect the lender in the event that the borrower fails to pay back the loan and typically chosen by the borrower. This is usually only required if borrower puts less than 20% down. Mortgage Insurance is canceled once the loan-to-value reaches 78%. Learn more about Private Mortgage Insurance here.

A payment example breakdown might look something like this for a $500,000 home with 10% down ($50,000) and monthly payments around $2,844.

Monthly payments start when escrow is closed. For example if you close March 15^th- your closing costs will include interest for March 15-31. Your next payment is due in May when  you will be paying April’s interest. Your escrow agent will give detailed information on when and where to make a payment. Ultimately you will have control as to how frequently and when the payments are made. Auto pay is advantageous for those who might forget payments where multiple payments throughout the month might be better for those with a very structured bill pay schedule.

When deciding on a payment plan that’s right for you, there are a few options to consider. One extra payment a year could potentially shorten your 30-year fixed mortgage down a few years. Additional monthly payments pay down the interest owed and allows you to pay your principal balance down faster as well. Try our Equity Accelerator Calculator to see the potential savings of making extra payments.

Don’t over-extend yourself financially, remember to save for a “rainy day” situation and unforeseen issues. Putting your finances in a strained situation because you are trying to put down a larger amount or make extra payments can potentially cause problems later on. Be kind to your credit and be realistic! Make sure to be honest about your situation with your Mortgage Expert.

Learn more about mortgages with our post on Fixed vs. Adjustable Mortgage Rates.

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In light of the recent soft data patch and low inflation, some are expecting the Fed to possibly postpone tapering off QE later this year. Tapering off QE3 this year was not a promise or a forecast made by Bernanke. It was simply a view that should things continue to evolve and move in the positive direction, Fed tapering would occur. The early weakness in economic data and inflation holding flat suggests that the tapering timeline could be postponed. There are two key drivers to this. The first is the soft data which has come in earlier this year than in 2011 and 2012. If the recent soft data is repeated this year, there would be little incentive for the fed to lift off the monetary accelerator. The second aspect is inflation. The Fed is willing to increase QE3 if inflation continues to trend lower on headline and core PCE, it’s preferred measure if inflation. The Fed’s commitment to holding rates down as long as inflation behaves is in response to avoiding a repeat of Japan’s mistake. However if our economy is growing fast enough to generate rising inflation, we would be better prepared to handle the impact of a rate increase above the current zero lower bound.

Source: tradingeconomics.com

Across the pond, German Chancellor Angela Merkel said on Thursday that the European Central Bank would have to raise interest rates if Germany was the only benchmark. But since Germany is part of the larger euro zone, which has a large disparity in economic performance, the ECB’s policy needs to factor in the whole 17-state bloc when it comes to tailoring monetary policy. The usually outspoken comments from Merkel come as the central bank appears to be lowering interest rates imminently. Germany, on pace to grow 0.5 percent this year and 1.6 percent next year, needs the ECB to raise interest rates to hold or possibly even improve their economic performance. Meanwhile underperforming states such as Portugal and Italy that are heavy on small to medium-sized enterprises (SMEs) need the ECB to lower interest rates as high corporate borrowing costs have tightened available liquidity and essentially erased all of the country’s reform efforts. This is quite the conundrum for Germany as they are essentially the euro zone’s paymaster. However the development of SMEs is the key to getting the currency bloc back to growth.

This morning, MBS opened higher and mixed on the spread as the Michigan Sentiment beats the consensus. On the equities front, the S&P is off -0.29% currently trading at 1,580.85 and the Dow has rallied +0.1% trading at 14,715. Overnight stocks were lower as many in Europe booked profits this week ahead of the onrushing holidays. On the jumbotron, the major European exchanges traded down 1/2 to 1 percent after Asian markets closed higher by almost 1 percent. And lastly from our trade floor, July FN30 3s are trading at 103-29 (+0.203125), July FN15 2.5s are trading at 104-02 (+0.140625), July GN30 3s are trading at 105-16+ (+0.21875) and July G230 3s are trading at 105-11 (+0.21875).

Economic Calendar

Next week is heavy on the economic calendar. On Monday, April 29th, Personal Income and Consumption will provide measures of income from all sources. The figure is estimated from data in the employment report. Within this report is a section covering personal consumption and expenditures (PCE) that is comprised of durables, non-durables and services. Income gives households the power to spend and investors watch the outlays of data to gauge the strength of the consumer sector. On Tuesday, April 30th, the Chicago PMI compiles a survey and a composite diffusion index of business conditions in the Chicago area. Investors track this data to understand the economic backdrop for various markets in the Chicago region but many see the data as being representative of the overall economy. Also on April 30th, Consumer Confidence will send out the results of a monthly survey of 5,000 households. Investors watch this as consumption patterns tend to affect how certain investments will perform. On Thursday, May 2nd, International Trade will update the overall trade balance. Investors watch this to gauge economic trends here and abroad and also measure competitiveness amongst industries. And lastly, and most importantly, on Friday, May 3rd, the Employment Report will give us the unemployment rate. This will move the market in dramatic fashion as this is one of the key Fed QE benchmarks while investors watch this as a primary indicator of aggregate economic activity.  

ABOUT THE AUTHOR

Samuel Scott Financial Group is proud to be a part of Opes Advisors and offer clients a wide variety of home loan options and industry leading processing.

Marcus Lam manages the Secondary Marketing for Opes Advisors, a firm that brings integrated wealth management and mortgage services into one holistic approach. A financial expert with extensive experience in the real estate industry, Marcus offers unique insights and analysis of local and global market conditions. Every Friday he shares his succinct and candid take on the latest economic news and what he sees in the forecast.

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FHA Loans have long been a good option for many looking for flexibility in their home purchasing plans. Recent changes in FHA insurance premiums and polices make knowing your options even more important in the recovering housing market.

Changes To Watch

FHA Loans are getting more expensive, most recently raising the insurance premium in April for the second time this year. This increase has influence on upfront cost and recurring monthly cost for FHA insured mortgages (an estimated $5 more a month). There is also an impending revocation of the right to cancel premiums for most new FHA borrowers starting June 3. Private mortgage insurers can now offer much more attractive deals to the most creditworthy homebuyers than FHA.

WASHINGTON – As part of ongoing efforts to encourage the return of private capital in the residential mortgage market and strengthen the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund, Acting FHA Commissioner Carol Galante today announced a new premium structure for FHA-insured single family mortgage loans. FHA will increase its annual mortgage insurance premium (MIP) by 0.10 percent for loans under $625,500 and by 0.35 percent for loans above that amount. Upfront premiums (UFMIP) will also increase by 0.75 percent. These premium changes will impact new loans insured by FHA beginning in April and June of 2012. Details will soon be published in a Mortgagee Letter to FHA-approved lenders.

Borrowers being driven towards Private Mortgage Insurance

By the agency’s own estimates, during fiscal 2012 it had a 14.6 percent share, including refinancings and home purchases. But in some key segments of the market, its presence is much bigger.

• Fifty percent of African-American home purchasers in 2012 used FHA loans, according to agency estimates.
• Roughly 40 percent of Hispanic and Latino buyers depended on FHA insurance last year as well.

FHA says they are increasing prices in part to “ensure that FHA does not take on additional market share.”

Private mortgage insurers can now offer much more attractive deals to the most creditworthy homebuyers than FHA. Private insurers appear likely to start “creaming” the best of FHA’s current customer base — the low credit-risk, 700+ credit score borrowers who have provided the bedrock for FHA’s vaunted, high quality 2010-12 books of new business. This could leave FHA with a preponderance of borrowers who have the lowest scores and present the highest risk of future default and foreclosure.

Buyers using private insurance enjoy a congressionally-guaranteed right to terminate their premium payments once their loan-to-value ratio declines to 78 percent. Under FHA’s policy taking effect in June, only borrowers who make 10 percent down payments will have a right to cancel premiums, after 11 years.

With the changes in regulations, requirements and benefits of FHA Loans, it’s important to consult with an Expert Mortgage Advisor before selecting a home loan.

Get a recap of the FHA basics with our helpful Marketing Flyer.  If you’re an agent, get this flyer (and over 30 more) Team Branded here!

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Getting the right balance between down payment and loan amount might not be so much a secret, but a science that Expert Mortgage Advisor Dean Brown explains here. Many first time home buyers will have to save for this step while those who are looking to buy for a second or third time , sometimes called “move-up” buyers, might already have equity in their previous home to use. 

There are many factors that influence down payment amounts and the origination of funds. A traditional down payment is a portion of the home’s purchase price paid in cash. This is not part of the loan and is typically wired into escrow a few days before closing.

A standard down payment would be 20% of the home’s purchase price. An example would be a $60,000 down payment on a $300,000 home. Other options with the purchase of PMI (Private Mortgage Insurance) are 15%, 10%, 5% and 3%, which could potentially lower the down payment as low as $9,000.

For those who qualify for an FHA loan, they offer a 3.5% downpayment while VA loans offers 0% options for qualified veterans. These loans do however come with other charges to consider such as funding fee’s and upfront mortgage insurance premiums.

Many factors go into down payment options, but a larger down payment is generally required for an individual with a credit score 640 or lower.  Residency is also a big decider when coming up with a down payment. For primary residence the downpayment can be as little as 0 – 3.5%, for a secondary residence this payment becomes 20 – 25%. When choosing the larger amount down, the chances of having a better interest rate rise.

Reasons for more down: keeps payments low avoids PMI easier to obtain better interest rate

Reasons for less down: preserves cash could need more for expenses in the future saving for starting a family/college fund

Saving Strategies:

• open a separate savings account
• put in a set amount a month
• don’t use this money for anything but purchase or for absolute emergencies
• obtain gift funds*

*FHA financing allows the full amount of gift funds to pay for the down payment. For conventional financing, the borrowers must contribute 5% of their own fund if gift funds are used.

Want to know more about what your qualifications for a home loan? Fill out our secure Home Loan Application and be ready for the housing inventory heating up this summer.

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Bank of America CEO Brian Moynihan

Bank of America Corp’s revenue fell across almost all of its business sectors in Q1 of 2013 as the financial powerhouse under CEO Brian Moynihan continues to be haunted by its purchase of Countrywide. The usual moneymakers for the company – consumer banking, mortgages, currency and commodities trading – turned in weaker performances resulting in just $23.85 billion, a 8.4% reduction. In a statement to how much BAC is struggling, Citigroup may be recovering at a faster pace. It’s crazy to think that $23.85 billion is struggling, however there is enormous earning capacity that we’re certainly not seeing. This past Wednesday, the bank said it settled three mortgage-backed securities lawsuits related to its Countrywide unit for $500 million.

Morgan Stanley isn’t faring much better as it reported on Thursday that it had another difficult quarter in trading commodities due to “cyclical headwinds” in markets even as revenues improved from Q4 2012. Morgan Stanley said its net revenue from trading commodities, currencies and bonds fell more than 40% in Q1 2013, a much greater decline than experienced by rivals Goldman Sachs and JP Morgan.

Gold prices fell 9% on Monday April 15th

Q2 2013 could be even tougher for Wall Street banks if the tumble in gold, oil and other commodities signal a period of uncertainty for markets. Considering how lucrative mortgages have been in the past couple of years, we might see a resurgence of street firms as new potential investors for Opes.

Across the pond, the IMF warned that low U.S. rates can spark adverse financial side effects to the global market. Loose monetary policy has encouraged weaker standards to corporate underwriting, posing a threat to financial stability. Pension funds, insurance companies and even emerging economies are also taking on added risk as investors chase yields, putting investors more vulnerable to volatile capital flows. The IMF reported that global financial stability has improved in the last six months and there are few clear signs of asset bubbles. However governments must remain vigilant to ensure they are holding true to banking reforms.

Monetary easing will be a critical debate amongst central banks from the world’s top economies as the Bank of Japan earlier this month pledged to inject $1.4 trillion into its economy and the U.S. Federal Reserve continued its expansive policies intended to push investors to take on more risk to spur economic growth. With that said, the IMF believes that it is still appropriate for nations to continue their monetary stimulus for now but it’s sending a clear warning to start planning for the consequences of ultra-easy monetary policy.

Japan’s Prime Minister, Shinzo Abe, aims to make Japanese exports more competitive in the global market among many other initiatives

Today Treasuries are nearly at their highest level for 2013 and some analysts are predicting they are likely to continue to rise in the coming months. The Fed is scheduled to purchase up to $1.75 billion of Treasuries due 2036 to 2043 in an effort to hold pressure on borrowing costs with quantitative easing. Across the pond, finance leaders of the G20 economies gathered to debate how best to rein in debt levels and the potential dangers of aggressive monetary easing policy from the world’s largest central banks. Also on the agenda was deep diving into effects of sharp austerity drives as those efforts have at times damaged economies suffering from capital flight. MBS opened this final trading day of the week lower in price and unchanged to slightly wider on swaps. As we progress through the morning, MBS pricing is firming modestly as volatility is easing. Overnight stocks were higher worldwide as China outshined the rest of Asia and France was best in Europe. On the home front, the S&P is up +0.79% with the Dow down -0.05%. And finally from our Opes trade floor, July FN30 3s are trading at 103-19+ (-0.046875), July FN15 2.5s are trading at 103-29+ (-0.03125), July GN30 3s are trading at 105-08 (-0.09375) and July G230 3s are trading at 105-03+ (-0.078125).

Economic Calendar

Next week on the economic calendar, we have several data points scheduled to be released. On Monday, April 22nd, Existing Home Sales will report the level of sales of existing homes. This report is a decent indicator of activity in the housing sector plus home owners know that real estate tends to be a powerful multiplier for retail sales. On Tuesday, April 23rd, New Home Sales will report the level of new privately owned one-family houses sold and for sale. Again, real estate can help gauge economic momentum and provide a multiplier through various sectors of the economy. On Wednesday, April 24th, Durable Goods Orders will release the measure dollar volume of orders, shipments and unfulfilled orders of durable goods. Durable goods orders are a leading indicator of industrial production and capital spending providing insight on demands from businesses. On Friday, April 26th, Gross Domestic Product (GDP) will provide the broadest measure of economic activity. GDP is the all-inclusive measure of the economy so know that investors will be tracking this closely. And lastly, also on Friday April 26th, the University of Michigan’s Consumer Sentiment Index will publish the results of 500 households’ conditions and attitudes towards the economy. Consumer sentiment is directly correlated to consumer spending which has the foremost influence on stock and bond markets.

ABOUT THE AUTHOR

Samuel Scott Financial Group is proud to be a part of Opes Advisors and offer clients a wide variety of home loan options and industry leading processing.

Marcus Lam manages the Secondary Marketing for Opes Advisors, a firm that brings integrated wealth management and mortgage services into one holistic approach. A financial expert with extensive experience in the real estate industry, Marcus offers unique insights and analysis of local and global market conditions. Every Friday he shares his succinct and candid take on the latest economic news and what he sees in the forecast.

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Surveyed from more than 1,000 respondents, the most recent Fannie Mae Monthly National Housing Survey shows the general attitudes about the housing market in March 2013.

48% of Consumers Believe Home Prices will Continue to Rise

Despite the negative outlook on personal finances and the economy, consumers look towards the housing market with continued optimism.

Although the average 12-month home price change expectation fell slightly this month, Doug Duncan, senior vice president and chief economist at Fannie Mae says, “consumers believe that the housing market will march on”.

Even with the confidence in home prices rising, this month, the share of respondents that would buy if they were in the position to move, fell 3 percentage points but still at a generous 64%.

At 26%, up 1 percentage point from last month, respondents also said it is a good time to sell. This level of confidence is the highest it’s been since June 2010.

How about Renting?

Of those surveyed, 50% also believe that rental prices will also go up in the next 12 months. We’ve been seeing this trend in San Diego already as the job market stays at a slow crawl, homeownership has been put on the back burner for many. According to MarketPointe, a market analysis company for California, the average rent in the county is up 2.6% from a year ago.

How Do We Feel About Mortgage Rates?

Those surveyed have firm belief that with the upswing in prices and the hopeful economic recovery that mortgage rates are also on the rise. At 46%, the highest level since May 2011, consumers have a realistic view of a housing market that is on the brink of a comeback.

Even with the slight fluctuation in mortgage rates, they remain at all time lows. See what happens when mortgage rates increase with our increase calculator. Less than 1% change could mean more than a $83,000 payment increase over the term of your loan!

Download the March 2013 Fannie Mae National Housing Survey here.

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In the latest March minutes, the U.S. Federal Reserve appears to be on course to start tapering off the pace of asset purchases by midyear and end their extraordinary bond buying program by year end. The meeting occurred on March 19 – 20, before the latest jobs data, suggesting that the economic results may have taken them by surprise. While the doves and the hawks remain sharply divided on how long the bond buying should last, the minutes nonetheless showed a general consensus that they need to start winding down the program.

In light of the uncertain impact of tighter U.S. fiscal policies, the Fed decided to continue its QE3 program and continue its $85bn in Treasury and mortgage bonds per month to stimulate the economy, however there was intense discussion on how to return the balance sheet, currently at more than $3 trillion, back to a more normal size and the different strategies to end QE3. Keep in mind that the meeting minutes occurred prior to the anemic non-farm payroll numbers (+88,000) and although the unemployment rate dropped to 7.6%, it was mostly due to people leaving the labor force. Given the recent weak U.S. economic growth momentum, it’s possible that the Fed may push their asset buying strategy further into the horizon relative to the discussions in March. 

Portugal and Ireland are expected to win seven more years to repay loans from the European Union helping both countries return to the financial markets. Dublin and Lisbon lost access to market financing in 2010 and 2011 respectively and were forced to take emergency loans from Europe. These debt extensions come as a major relief by putting less of a burden on these countries who are seeking to put their bailouts behind them. The current repayment schedule is seen as impossible as both countries are also facing tough austerity measures.

By extending the maturity, the payments are spread over a longer time thereby reducing the burden on the countries. After two years of very tight fiscal controls, the ECB, IMF and EU agree that Portugal has done an impressive job reforming its economy and deserves to be helped by its European partners. Lisbon still needs to find new measures to fill a €1.3bn gap in 2013. Ireland is likely to get full support and will need to roll-over around €20bn euros per year in 2016-2020. Ireland is expected to return to full market financing late this year while Portugal is expected to make its reentry in 2014.

This morning, prices for U.S. Treasuries rose as disappointing data again underscored the potential weakness in the U.S. economy. Retail sales contracted 0.4 percent in March for the second time in three months exceeding analysts’ expectations that the sales would be flat. Prices for Treasuries rose on this data with the 30-year bond gaining more than one full point. PPI also dropped the most in 10 months as the cost of gasoline tumbled. Meanwhile, EU concerns again intrude as MBS winds up the week racing higher in prices. Overnight, stocks came off recent highs as Japan was rebuffed on technical resistance levels while Europe continued to face ongoing challenges surrounding the Cyprus bailout. MBS this morning is seeing prices rising and swaps softening. On the trade floor, June FN30 3s are trading at 103-21+ (+0.21875), June FN15 2.5s are trading at 103-26 (+0.046875), June GN30 3s are trading at 105-10+ (+0.234375) and June G230 3s are trading at 105-06 (+0.265625).

ECONOMIC CALENDAR

Next week on the economic calendar, we have several big data releases scheduled. Tuesday, April 16th will be a big day for economic data. Consumer Price Index (CPI) will update the level of a fixed market basket of goods and services purchased by consumers. The CPI is the most widely cited inflation indicator and is used to calculate cost of living adjustments, social security payments and labor contracts. The bond market tends to rally (fall) when increases in the CPI are small (large). On the same day, Housing Starts and Building Permits will measure the number of residential units which construction begun each month. As housing starts reflects the commitment of builders to new construction, real estate values and retail purchases of household furnishing and appliances quickly follow. And lastly on Tuesday, Industrial Production will measure the physical output of the nation’s factories, mines and utilities. The manufacturing sectors accounts for less than 20% of the economy, but its results can show cycle variations and provide insights on where certain sectors are growing more rapidly. On Thursday, April 18th, Initial Claims will measure the number of new filings for state jobless benefits. Initial Claims tend to have large volatility in week-to-week numbers but the overall trend helps gauge the strength of the job market.

ABOUT THE AUTHOR

Samuel Scott Financial Group is proud to be a part of Opes Advisors and offer clients a wide variety of home loan options and industry leading processing.

Marcus Lam manages the Secondary Marketing for Opes Advisors, a firm that brings integrated wealth management and mortgage services into one holistic approach. A financial expert with extensive experience in the real estate industry, Marcus offers unique insights and analysis of local and global market conditions. Every Friday he shares his succinct and candid take on the latest economic news and what he sees in the forecast.

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As the housing market makes it’s “comeback” , potential home owners are re-evaluating their financial abilities in the marketplace once again. According to real estate research site, Trulia, buying is still financially better than renting in the top 100 major metro areas.

With home prices seeing steady rise, 7% in the last year, the sellers market is still heating up while rentals only rose about 3.2%. The good news for buyers is with Trulia’s data, obtaining a still low mortgage rate to buy is an average 44% cheaper than renting, down only slightly from the 46% of 2012.

The Trulia averages are with an assumed mortgage rate of 3.5% in the 25% tax bracket and will stay in their home for 7 years. For accuracy, the properties compared were identical and the averages were made with with maintenance, insurance and taxes being factored in. Also taken into account were price, rent appreciation and inflation as well as closing costs, security deposits and other one time costs.

Even with a less optimal interest rate of 5.5%, non-itemized deductions and less time in the home, the national average of savings from buying stayed at 20% and above.

The largest difference can be seen in Detroit at a 70% savings when buying vs. renting, but even in the more popular areas of San Francisco, buying comes out at 19% cheaper than renting.

San Diego still comes in at 18% even at higher mortgage rates.

San Diego comes in at a 33% average savings when buying vs. renting. Even with a 5.5% Mortgage rate, buying is still 18% cheaper than renting.

Will this change in the coming year?

There are two things to keep an eye on when looking to the next year: home prices and mortgage rates. The gap seems to be narrowing and according to Jed Kolko, Trulia’s Chief Economist, buying could quickly become more expensive than renting in certain markets as the economy improves. This is most true for those with less than great credit, as their mortgage rates will be less competitive.

Want to know where you stand in the great debate? Our Rent vs. Buy Payment Calculator can help give you a better idea of when is the best time to make your move into the market. With interest rates still lower than expected, now is the time to talk to a Mortgage Advisor about your buying power.

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Employment data has been the primary driver to mortgage rates all week. Wednesday and Thursday’s ADP and Initial Claims results pushed mortgage yields on MBS June FN30 3 futures contracts from 102-19 to upwards of 103-15, a gain of 87.5 basis points. The data was enough to steer investors towards safe-haven bid for Treasures as the concerns arose that the labor market was losing steam. The number of Americans filing new claims for unemployment rose 28,000 last week to a seasonally adjusted 385,000 pushing levels to its highest since last November.

For the past three years, economic growth has hit a soft patch going into the spring and summer months and employment volatility has be partially tied to spring vacation in March. However with our recent recovery, this small blip seems to have sent jitters throughout the market about second-quarter economic output. As for U.S. Treasury yields, not all of the recent performance can be tied to U.S. employment. Most of the bond buying has been from international investors such as banks in the peripheral European countries. With the recent chaos caused by the austerity / euro zone bailout attempts to tax uninsured deposits in Cypriot banks, many large depositors and financial institutions should be asking themselves how much further should they diversify their investments. 

Across the pond, the European Central Bank (ECB) held its main interest rate at a record low 0.750% as it waits to see if the economy will stabilize in light of the recent volley of weak economic data. ECB president Mario Draghi put the blame for the initial turmoil over the market instability squarely on Cyprus’ government as he tried to ease fears that bank deposits would be fair game for international bailout lenders.

Meanwhile France’s business activity dropped at its fastest pace in six months across a wide sector of businesses including banks, hotels and restaurants. The pace of decline managed to outstrip even the downturns in Spain and Italy. While data shows that Cyprus’ mishandling of €10bn bailout had no direct impact on the private economy, business still reported that they have become increasingly worried about the region’s debt crisis and political instability. As France sees their worst downturn since the 2008 – 2009 great recession, in Germany, the biggest European economy, growth slowed to a crawl in March putting the two biggest engines in the currency union’s core at a stall.

Mortgage markets rallied like it’s their day job this morning after the government’s report that U.S. employment grew at its slowest pace in nine months. The U.S. economy produced just 80,000 new jobs last month. And while the unemployment rate edged lower, the primary driver to that figure was people leaving the workforce. The jobs report combined with concerns that the U.S. growth could slow in coming month, weaker global equity markets, Bank of Japan’s stimulus program and escalating tensions in the Korean peninsula, investors are being encouraged to buy safe-haven bonds thereby pushing yields lower. Benchmark 10-year Treasury notes rallied 17/32nds as yields eased to 1.71%. MBS futures are up again this Friday morning. June FN30 3s are trading at 103-30+ (+0.546875), June FN15 2.5s are trading at 104-04+ (0.28125), June GN30 3s are trading at 105-13+ (+0.640625) and June G230 3s are trading at 105-10 (+0.6875). It’s probably not a bad day to lock.

Economic Calendar

Next week we have several big data points scheduled late in the week on the economic calendar. On Thursday, April 11th, International Trade will produce trends in both exports and imports of goods and services. The prices measured provide solid inflationary trends in internationally traded products. The data impacts exchange rates along with the bond market as importing inflation erodes the value of the principal paid back at maturity. On Friday, April 12th, Retail Sales data will measure the total receipts of retail stores. Watch the market closely that day as consumer spending accounts for more than two-thirds of the economy. This will have a pretty strong influence on stock and bond markets as retail sales not only gives investors a sense of the economic strength but provides trends on where Americans are spending our money. And also on Friday, April 12th, the Producer Price Index (PPI) will provide updated index on the price of goods at a wholesale level. As wholesaler’s prices go up, so does the consumers’. PPI provides significant information to investors on how to anticipate inflationary consequences in the coming months.

ABOUT THE AUTHOR

Samuel Scott Financial Group is proud to be a part of Opes Advisors and offer clients a wide variety of home loan options and industry leading processing.

Marcus Lam manages the Secondary Marketing for Opes Advisors, a firm that brings integrated wealth management and mortgage services into one holistic approach. A financial expert with extensive experience in the real estate industry, Marcus offers unique insights and analysis of local and global market conditions. Every Friday he shares his succinct and candid take on the latest economic news and what he sees in the forecast.

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