| | In This Issue  | | | | | | | Last Week in Review: Little change came from the Fed's latest meeting. Find out what that means for home loan rates, and also why Greece is still the word! Forecast for the Week: Two juicy economic reports bookend the week, bringing highly anticipated news on inflation and the labor market. View: Learn more about Cinco de Mayo and its connection to the United States! | | | | | | | | Last Week In Review | | 
| | | | | | | They say "the only constant is change...", yet last week's meeting of the Federal Open Market Committee ended without any major changes...no change to the Fed Funds Rate, and no change to the now-famous verbiage in their Policy Statement, stating that rates will remain low for an "extended period" of time. While the Fed does not control home loan rates, what does all this mean for those seeking home financing in the months ahead? Read on for details.  There are two important things to note about last week's Fed meeting. First, despite strong earnings, a stronger Stock market, and better consumer confidence and housing numbers, St. Louis Fed President Thomas Hoenig remains the lone dissenter to the verbiage in the Policy Statement on keeping rates low for an "extended period." He feels that there is a strong risk of inflation ahead...and that the Fed needs to prepare the markets for the eventual hikes that will be coming to the Fed Funds Rate. When the Fed does indeed change this language, it will signal that the Fed has a consensus on inflation being a threat...and since inflation is the arch-enemy of home loan rates, the change in verbiage will cause rates to move higher.
In addition, the Fed made no mention in their Policy Statement about selling any of their Mortgage Backed Security (MBS) holdings - and the added supply coming into the market will also cause home loan rates to rise. That said, the Fed may have discussed the topic during the meeting, and it could come up when the Meeting Minutes are released. There is growing concern that if the Fed doesn't begin selling some of these MBS holdings by 2011 that additional asset bubbles may arise. It's likely that the Fed will look to sell a meaningful chunk by year end, and this will be yet another headwind for home loan rates during the coming year. If you want to see if you can benefit from the current low-rate environment before these items adversely impact home loan rates, please give me a call or send me an email...and as always, please feel free to pass along this newsletter to a friend, coworker or family member that might benefit. In other news, Consumer Confidence rose sharply in April, to its highest reading since September 2008. This number is important because the more confident that consumers feel...the more likely it is that they will help fuel the economy. Also, the Commerce Department's Gross Domestic Product Report indicated that the economy grew for the third straight quarter, despite the report coming in slightly below estimates. Inflation readings within the report remained tame, giving the Fed cover to keep interest rates low, with inflation appearing to be subdued. But inflation concerns can arise quickly, and although the Fed is not acting just now...we can be sure they are watching very carefully. Greece was still the word last week, as Standard & Poor's Bond rating agency downgraded the debt of Greece to "junk" status. The lack of confidence in Greece's ability to repay their debt has pushed yields on their 2-Year Notes up to a whopping 18% to try and incent investors - and by way of comparison, our own US 2-Year Notes are yielding just over 1%! This is why credit downgrades are such a concern, and why the warnings from Moody's about the US overspending must be taken very seriously. There has been much greater volatility in the Bond market lately, with large price swings in both directions. It's no coincidence that the volatility increased just after the Fed exited their buying program. While concerns about Greece have caused some investors to lose some confidence in European debt instruments, and move their holdings over to US securities, which are viewed as a safer bet, the situation is fluid and there's no telling how much and for how long Bonds and home loan rates will benefit from the situation. Overall - the mix of news and market activity benefitted Bonds and home loan rates last week, improving to better levels over the week prior. LIBERTY AND FREEDOM FOR ALL IS ALWAYS A CHANGE IN THE RIGHT DIRECTION! CHECK OUT THE MORTGAGE MARKET GUIDE VIEW TO LEARN ABOUT THE HISTORY OF "CINCO DE MAYO", BEING CELEBRATED THIS WEDNESDAY! | | | | | | | | Forecast for the Week | |
| | | | | | | Two important reports bookend the week ahead, and hopefully both will show changes in a good economic direction. Monday's Personal Income and Personal Spending Reports will give us a look at the Core Personal Consumption Expenditure (PCE), which is the Fed's favorite gauge of inflation. Rest assured the Fed will be watching this report very closely, as it could impact their decisions on rates and Policy Statement verbiage, as we discussed. Thursday will bring another Initial Jobless Claims Report. At this stage in the economic recovery, the weekly Initial Jobless Claims readings we are seeing are still pretty high, which suggests that businesses are both reluctant to hire and are looking to trim overhead. And the big enchilada of employment news wraps up the week, as April's Jobs Report is due for delivery on Friday morning. Last month's report showed that 162,000 jobs were created in March, making it the biggest one-month increase in three years. Additionally, there were upward revisions to January and February, which brought the last two months' net job losses to near zero. But it's not time to break out the party hats just yet...last month's report also showed that the official Unemployment Rate remained steady at 9.7%, and when factoring in the "underemployed", including people who accepted part-time work because full-time work is simply not available, the rate of unemployment overall rose from 16.8% to 16.9%. This report will be very important to watch, as the labor market is key to our economic recovery. Remember this rule of thumb: Weak or negative economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong or positive economic news normally has the opposite result. As you can see in the chart below, the instability in Greece and the Fed's decision to keep rates low for an extended period of time gave Bonds a boost above a key technical level. But remember, volatility is the name of the game at the moment, and things can change quickly. I'll be watching closely to see in which direction Bonds and home loan rates move this week - and always welcome a call or email from you if I can help answer any questions! -----------------------
Chart: Fannie Mae 4.5% Mortgage Bond (Friday, April 30, 2010) 
| | | | | | | | The Mortgage Market View | |
| | | | | | | Celebrating Cinco de Mayo...and Its Connection to the United States This Wednesday marks the celebration known as Cinco de Mayo, or "May 5th", in Spanish. Although many people have heard of this holiday - and even join in the celebrations with gusto - plenty of folks are not aware of what this holiday is all about. And most people don't realize that the event being commemorated may have actually played an important role in shaping the United States that we know today. Let's take a look at what this holiday is about, and have even more reason to celebrate Cinco de Mayo - as well as liberty and freedom - this Wednesday, May 5th. What Does Cinco de Mayo Commemorate? Many people believe that Cinco de Mayo is the day that recognizes Mexico's independence from Spain. To set the record straight, that conquest happened on September 15th, 1810. Cinco de Mayo, on the other hand, celebrates an event that took place over 50 years later. On May 5, 1862, the Mexican cavalry, under the command of Texas-born General Zaragosa, defeated the French at the battle at Puebla, a city 100 miles east of Mexico City. The French army, having not suffered a defeat in nearly 50 years, landed in the port of Vera Cruz and headed toward the capital city with a specific mission. Fearless of any opponent, the French sought to overthrow the capitol and gain control of Mexico, even bringing along a Hapsburg prince to oversee the would-be empire. So...What's the Connection to the United States? The goal of France's leader, Emperor Napoleon III, was to gain proximity to the US, in hopes of supplying the Confederate Army with support in their fight against the North...as he desired to sustain the division within America. To America's benefit, the undersized Mexican cavalry used their knowledge of the terrain to defeat the powerful French army. This victory enabled the Northern States to continue to build the greatest army in the world at that time. Fourteen months later, the North soundly defeated the Confederate Army in the battle at Gettysburg, thus ending the Civil War. Union troops were subsequently rushed to the Texas/Mexican border to help expel the French from Mexico. Cinco de Mayo is rightfully celebrated in both the US and Mexico - and it's a great occasion to honor freedom and liberty.
Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise. Economic Calendar for the Week of May 03 - May 07 | Date | ET | Economic Report | For | Estimate | Actual | Prior | Impact | | Mon. May 03 | 08:30 | Personal Income | Mar | 0.3% | | 0.0% | Moderate | | Mon. May 03 | 08:30 | Personal Spending | Mar | 0.6% | | 0.3% | Moderate | | Mon. May 03 | 08:30 | Personal Consumption Expenditures and Core PCE | Mar | NA | | 0.0% | HIGH | | Mon. May 03 | 08:30 | Personal Consumption Expenditures and Core PCE | YOY | NA | | 1.3% | HIGH | | Mon. May 03 | 10:00 | ISM Index | Apr | 60.0 | | 59.6 | HIGH | | Wed. May 05 | 08:15 | ADP National Employment Report | Apr | 30K | | -23K | Moderate | | Wed. May 05 | 10:00 | ISM Services Index | Apr | 56.1 | | 55.4 | Moderate | | Thu. May 06 | 08:30 | Jobless Claims (Initial) | 5/01 | 440K | | 448K | Moderate | | Thu. May 06 | 08:30 | Productivity | Q1 | 2.4% | | 6.9% | Moderate | | Fri. May 07 | 08:30 | Average Work Week | Apr | 34.0 | | 34.0 | HIGH | | Fri. May 07 | 08:30 | Hourly Earnings | Apr | 0.1% | | -0.1% | HIGH | | Fri. May 07 | 08:30 | Non-farm Payrolls | Apr | 187K | | 162K | HIGH | | Fri. May 07 | 08:30 | Unemployment Rate | Apr | 9.7% | | 9.7% | HIGH |
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