You are Officially On the Clock

If you have been holding off buying or refinancing your home in hopes of a lower monthly payment or perhaps to leverage some of the appreciation in equity your home undoubtable gained over the last 4-5 years, might I strongly suggest you start that process today. Like, this evening. When you get home. Today, the U.S. 10-year Treasury yield shot higher, taking mortgages and various consumer loan rates with it. There are a couple key reasons for this market movement and why this one has some legs. We are going go focus on two, both of which have little to do with the Fed.

1. The Bank of Japan (BOJ) who has been fighting negative interest rates in a market desperate for a steeping yield curve surprised the markets today (July 23rd) when the Japanese' Government pressed the 10-year Japanese government bond by 5 basis points, to 0.083 percent, the highest since February. The BOJ, which meets next week, announced it would buy bonds to curb the action, and the 40-year JGB also spiked, touching 0.92 percent. All Markets are interconnected. Fixed Income even more so.

2. The fight with China over US-China deficit GDP is just heating up. To understand how and why this affects US Mortgage rates is to simply understand that China is not only one of the largest buyers of US Treasuries, but they are also one of the largest owners of US Treasuries. The US buys over $500 billion in Chinese goods annually. China only buys $130 billion from the US. Quick math shows that a trade war focused on tariffs will hurt the Chinese more. How would they respond, we suggest they do it one of two ways. First by lowering or devaluing their currency (the Yuan). This is quick and they already do this as needed. Second, they slow or worse stop buying US Treasuries. Selling their $1 trillion in US Treasuries would also force bond yields could climb. That’s problematic as Treasury holders around the world, including the U.S. government and (you and I) will see their bond prices drop. Higher yields also make it more expensive for the U.S. government to borrow through new debt issues, while companies that issue corporate debt, would have to pay higher borrowing costs.

With the first already taking flight, we strongly suggest you move date night to another evening and spend some time getting your home loan in order.

Buying a Home and Have Questions?

Wonderful! Congrats on the decision. We have pulled together some helpful tips to get you started. These go pretty much in order, as most in the real estate industry will tell you it is important to stick with this road map to save yourself and others much anxiety.


How Much House Can You Afford?
Buying a new house is a big investment. You want to be sure that you have all the right finances before proceeding. Spend the time to do a serious audit of your finances and determine a budget. Use an Affordability Calculator to estimate how much you can afford on a house based on your income, savings, debt and assets. Any of Efinity's licensed mortgage professionals can also help with this. Check your credit score. Every year you are allowed one free copy of your credit report.


Get Preapproved For Mortgage
Now that you’ve checked your finances, it is time to see what kind of mortgages you qualify for. Many buyers make the mistake of assuming that being prequalified and preapproved for a mortgage are the same. They are NOT. At Efinity Mortgage at time of application we press deeply into your financial situation and certainly through the application process, an extensive financial background check and a current credit score report.


Find the Right Realtor
A realtor or real estate agent is another great person to have as you maneuver the home buying process. They have the in-depth knowledge on home buying and help you negotiate the purchase. This service is free for the buyer because the realtor is compensated by the seller. You can search online for a realtor at Realtor, Zillow, Trulia. Efinity Mortgage also works with a large number of realtors throughout our network.


Find a Home
You’re finally at the step you’ve been waiting for. Be sure to create a checklist of items you need and want in your future home. This will narrow down the endless choices of homes and help you focus on only the right ones. Also, make a list of your neighborhood preferences like safety, commute, type of schools, local shopping and grocery.


Get a Home Inspection
The home inspection is a step that many home buyers tend to skip over but this is a very important step once you’ve found a home you like. A home inspection checks for any damages to the home’s structure or foundation as well as any major or minor fix-ups that need to be done. Once a thorough home inspection is completed the buyer and seller will receive a report from the home inspector.


Make An Offer
Make an offer with the help of your realtor and don’t be afraid to negotiate price. This may take longer than you think but always be ready if the seller says yes.


Close the Sale
Before you close review all the costs associated with both the purchase and the expected monthly payments. No matter how much time and effort we put forth, it is still amazing to us how often clients gloss over these things. Spend the time and know what you are buying.

Todays Thought: Does your mortgage rate start with 4?

It’s often said that home is where the heart is. Yet we find that many of our clients fail to realize that a mortgage is at the heart of every good financial plan. Making sure you've got the right one can save you from unnecessary interest payments, which allow for further wealth creation and financial health for your family. Today, October 7th, we reached all historic lows for home loan rates (see http://www.msnbc.msn.com/id/38770102/ns/business-real_estate/) NOW is THE TIME to; refinance your current home loan, consolidate your existing home loan(s), access your equity and pay down higher credit rate loans or put home buying on the front burner!

When it comes to determining if your mortgage is still the right one for you, there are some important factors to consider; include the type of loan (or loans) you may need, your timeline for purchase, if you have an existing mortgage the your current loan balance, your existing interest rate, and any recent or upcoming changes to your financial situation (i.e. job change, marriage, divorce, kids going to college, etc). While considering the home loan process may seem like a daunting task, have no fear. Pick up the phone or email now to discuss your options with one of our licensed financial professionals. The time to ask is NOW. Just as rates arrived at historic levels, they very likely won't stay this way forever. On a side note, the importance of these historic rates can be summarized in the following way:

A $200,000 mortgage with a 30yr term at a rate 5.00% has a monthly principal and interest payment of $1,073.64.

At today’s rate, the same payment ($1,074.18) can be had with a $225,000 mortgage.

OR

A $400,000 mortgage, at 5.000%, has a monthly payment of $2,147.28 (P&I).

Today, that same payment ($2,148.37) gets you a $450,000 mortgage. That’s $50,000 more!!

With the disappearance of the capital markets in the residential mortgage space, the majority of all mortgage loans are now being purchased by our federal government. Yes, the same federal government who might seriously consider raising taxes! In closing, allow me to encourage you to spend a little time reviewing your situation today. After all, no one wants to look back and realize that a great opportunity to improve their financial situation has passed them by.

Present Day Fixed Income Challenges

As I write morning, Fed Chairman Bernanke just finished his monetary policy testimony to the Senate Banking Committee. Today’s appearance is part of his semi-annual trek to Capitol Hill to discuss the economy and monetary policy with members of Congress. In response to questions from committee members, Bernanke made it crystal clear that restoring financial market stability is job #1 at the Fed. Bernanke offered nothing new in terms of how exactly the Fed intended to achieve their primary mission – leaving little on which to pin hopes for notably lower mortgage interest rates on.
Just prior to Bernanke began his testimony the Labor Department reported that headline inflation at the producer level rose 1.8% in June as energy prices soared – pushing the overall Producer Price Index to its biggest monthly gain since November. Over the past twelve months producer prices are up 9.2% -- the strongest year-over-year gain since a jump of 10.4% in June of 1981. If there was any good news on inflation, it was that core producer prices (a value that excludes the more volatile food and energy components) edged up just 0.2% last month – a touch below most economists’ forecast calling for a gain of 0.3%. Look for mortgage investors to be very edgy for the balance of the day – the big gains in producer prices can only be absorbed by businesses income and balance sheets for so long before they are passed on to the consumer. We’ll find out if that time has come tomorrow morning when the June Consumer Price Index figures hit the news wires at 8:30 a.m. ET. A core consumer price index reading of more than 0.2% will likely bring the recent rally to lower note rates and higher investor prices to a screeching halt. Separately, the Commerce Department reported this morning that retail sales rose 0.1% in June, less than economists had forecasted. Excluding autos, retail sales rose 0.8% which was also below the consensus forecast. It appears the government rebate check effect faded sharply after supporting the May sales figures. Most bond investors had been anticipating a rather weak June retail sales report – so the actual numbers had little, if any direct effect on the current level of mortgage interest rates.

My old employer (National City Bank) has been in the news alot lately on fears of a similiar event of Indymac Bank. I have conducting a sizeable amount of research on National city and what exactly happened. I anticipate uploading this blog this evening.
It's something you don't want to miss!

This weeks' economic events:
Release Date & Time
Economic Indicator
Consensus Estimate
Analysis

Mon. July 14,
No data

Tue. July 15, 8:30 a.m. ET
June Producer Price Index
Core rate
+1.3% vs. last +1.4%
+0.3% vs. last +0.2%
Surging energy prices undoubtedly drove up costs at the producer level for the sixth straight month. The core rate, (a value stripped of the more volatile food and energy components) probably posted a gain of 0.3% last month. Investors have already priced-in a relatively “hot” read for June producer inflation. If the consensus estimate proves accurate look for a rather muted market reaction. Should the core producer price index post a gain greater than 0.3% -- mortgage interest rates will likely finish the day notably higher.

Tue. July 15, 8:30 a.m. ET
June Retail Sales
Excluding Autos
+0.4% vs. last +1.0%
+1.0% vs. last 1.2%
The expected gain in June retail sales will be heavily discounted as investors’ factor in the impact of government rebate checks on overall activity. Look for this data to be sharply overshadowed by the Producer Price Index report and Fed Chairman Bernanke’s testimony to the Senate Banking Committee later this morning.

Tue. July 15, 10:00 a.m. ET
May Business Inventories
+0.5% vs. last +0.5%
This bit of stale data will do nothing more than take up space on today’s calendar of events.
Tue. July 15, 10:00 a.m. ET
Fed Chairman Bernanke testifies to the Senate Banking Committee
Bernanke will be on the “hot seat” today as he will undoubtedly be grilled on everything from his take on the economy, to inflation and to the biggest question of all -- what, if anything, happens next in relation to the financial viably of Fannie Mae and Freddie Mac. Look for Bernanke to do a decent job of allaying the overwrought disaster scenarios whipped up by the media and, at least temporarily, soothing investor fears. If I’m right I don’t expect a rally to lower mortgage interest rates today – but I do think one of the preliminary stepping-stones for a bounce toward the end of the week will have been put in place.

Wed. July 16, 8:30 a.m. ET
June Consumer Price Index
Core Rate
+0.7% vs. last +0.6%
+0.2% vs. last +0.2%
In my opinion this is the “bigge” of the week with respect to the macro-economic reports scheduled for release. If the core rate (a statistical measure of inflation pressure at the consumer level that is net of the more volatile food and energy components) matches the consensus estimate, a second stepping-stone for a rally in the mortgage market later this week will have been moved into place. On the other hand, a core consumer inflation reading of 0.3% or higher will likely slingshot note rates higher while investor prices plummet. My personal opinion is that the actual core rate number will match the consensus estimate.

Wed. July 16, 9:15 a.m. ET
June Industrial Production &
Capacity Utilization
Unchanged
79.3 vs. last 79.4
The earlier Consumer Price Index and Fed Chairman Bernanke’s testimony later this morning will easily overshadow this data.

Wed. July 16, 10:00 a.m. ET
Fed Chairman Bernanke testifies to the House Financial Services Committee
His prepared text testimony will be exactly the same as he delivered yesterday before the Senate Banking Committee – and I bet the structure of the questions he will be called on the answer this morning won’t differ much either – likely making this event anticlimactic with respect to its likely impact on the trend trajectory of mortgage interest rates today.

Thurs. July 17, 8:30 a.m. ET
Initial jobless claims for the week ended 7/12
Up 34,000
Most investors tend to discount some of the jobless claims data this time of year to compensate for the volatility surrounding auto manufacturers’ temporary plant shutdowns for new model year retooling. An increase of more than 15,000 new jobless claims will tend to support steady to perhaps fractionally lower mortgage interest rates. If jobless claims fell by more than 15,000 last week look for investors to push mortgage note rates higher.

Thurs. July 17, 8:30 a.m. ET
June Housing Starts &
Building Permits
Down 1.5%
Down 1.8%
This report will have headline news but regardless of the figure, both starts and permits are broadly anticipated and therefore this data will likely have little, if any impact on the trend trajectory of mortgage interest rates today.

Fri. July 18,

Mon. July 21, 10:00 a.m. ET
June Leading Indicators
-0.1% vs. last +0.1%
This second tier report will likely draw nothing more than a passing glance from mortgage buyers.

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