Who can you trust?

Here's a question I would like to pose for the loyal Efinity audience.

Is the economic environment in this country really improving or are we all being fed a stream of special interest commentary which want us to think things are getting better?

I have two separate examples for your collective review which point to the latter. I for one have a HUGE problem with this. It's important to note that I include our government included as one of the special interest groups.
Example #1
As reported by the Wall Street Journal, Federal Reserve Chairman Ben Bernanke Monday downplayed inflation fears which led some of colleagues to recently warn tighter monetary policy may be needed to keep prices in check. Bernanke said the rise in global commodity prices is likely to be temporary and shouldn't translate into a broader inflation problem. However, the Fed chief was quick to add that if his prediction is wrong and inflation begins to mark strong gains, the central bank would respond. "I think the increase in inflation will be transitory," Bernanke said when asked to further explain.
This has been a consistent them from the Fed Chairman for the past 18 months. In no way shape or form believe my limited view trumps the access to data the Fed Chairman has, however I do believe that statistics can be shown in many ways to shape many opinions. And if left-unchecked can fog the real issue which is that inflation is here, it will affect the economic recovery of this country and there is a strategic advantage for the Fed to not fully publicize the real issue.

Allow me to explain further (if you don't care to read through this, you can skip to my summary). First, one has to understand how the Bureau of Labor Statistics determines the Consumer Price Index (CPI). The CPI is a measure of the average change in prices over time of goods and services purchased by households. The Bureau of Labor Statistics publishes CPIs for two population groups: (1) the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for all Urban Consumers (CPI-U) and the Chained CPI for All Urban Consumers (C-CPI-U), which cover approximately 87 percent of the total population and include in addition to wage earners and clerical worker households, groups such as professional, managerial, and technical workers, the self-employed, short-term workers, the unemployed, and retirees and others not in the labor force. The CPIs are based on prices of food, clothing, shelter, and fuels, transportation fares, charges for doctors' and dentists' services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 87 urban areas across the country from about 4,000 housing units and approximately 26,000 retail establishments-department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments. All taxes directly associated with the purchase and use of items are included in the index. Prices of fuels and a few other items are obtained every month in all 87 locations. Prices of most other commodities and services are collected every month in the three largest geographic areas and every other month in other areas. Prices of most goods and services are obtained by personal visits or telephone calls of the Bureau's trained representatives.

In calculating the index, price changes for the various items in each location are averaged together with weights, which represent their importance in the spending of the appropriate population group. Local
data are then combined to obtain a U.S. city average. For the CPI-U and CPI-W separate indexes are also published by size of city, by region of the country, for cross-classifications of regions and population-size classes, and for 27 local areas. Area indexes do not measure differences in the level of prices among cities; they only measure the average change in prices for each area since the base period. For the C-CPI-U data are issued only at the national level. It is important to note that the CPI-U and CPI-W are considered final when released, but the C-CPI-U is issued in preliminary form and subject to two annual revisions.

The index measures price change from a designed reference date. For the CPI-U and the CPI-W the reference base is 1982-84 equals 100. The reference base for the C-CPI-U is December 1999 equals 100. An increase of 16.5 percent from the reference base, for example, is shown as 116.500. This change can also be expressed in dollars as follows: the price of a base period market basket of goods and services in the CPI has risen from $10 in 1982-84 to $11.65.

Now that you have a better understanding, here's the most recent summary dates March 17th (see http://bls.gov/news.release/cpi.nr0.htm)
I'd like to point you to a few items once you've read through this list.

Seasonally adjusted changes from preceding month
Un-adjusted 12-mos.
Aug. Sep. Oct. Nov. Dec. Jan. Feb. ended
2010 2010 2010 2010 2010 2011 2011 Feb. 2011

All items.................. .2 .2 .2 .1 .4 .4 .5 2.1
Food...................... .1 .3 .1 .2 .1 .5 .6 2.3
Food at home............. .0 .4 .1 .2 .2 .7 .8 2.8
Food away from home (1).. .3 .3 .1 .1 .1 .2 .2 1.6
Energy.................... 1.6 1.1 2.5 .1 4.0 2.1 3.4 11.0
Energy commodities....... 2.6 2.2 4.4 .7 6.4 4.0 4.8 19.3
Gasoline (all types) .... 2.9 2.2 4.5 .7 6.7 3.5 4.7 19.2
Fuel oil (1)............ .9 .8 4.7 4.2 4.9 6.8 5.8 27.1
Energy services.......... .4 -.4 .0 -.8 .6 -.6 1.1 .2
Electricity............. .1 -.1 .2 .6 .3 -.5 .4 2.2
Utility (piped) gas
service.............. 1.4 -1.4 -.6 -5.3 1.7 -1.2 3.4 -5.9
All items less food and
energy................. .1 .0 .0 .1 .1 .2 .2 1.1
Commodities less food and
energy commodities.... .1 -.2 -.2 .0 -.1 .2 .2 .0
New vehicles............ .2 .1 -.1 -.2 -.1 -.1 1.0 .9
Used cars and trucks.... .9 -.4 -.6 .1 -.1 -.3 .1 1.9
Apparel................. .0 -.5 -.2 .1 .1 1.0 -.9 -.4
Medical care commodities
(1).................. .2 .3 .1 .2 .1 .5 .7 2.7
Services less energy
services.............. .0 .1 .1 .2 .1 .1 .2 1.5
Shelter................. .0 .0 .1 .1 .1 .1 .1 .8
Transportation services .0 .3 .3 .4 .2 .6 .5 3.5
Medical care services... .2 .7 .2 .2 .3 -.1 .4 3.0


Our SummaryWhile statically speaking, the adjusted 12 month index reflected a 2.1% increase (before seasonal adjustments), unless you're radically different than most people I know and don't spend equally on a whole range it items (including evidently a whole lot of apparel) this report summarized simply does not accurately reflect the present sign of the times. Which is; food, energy and gasoline are MAJOR drivers for people's spending. Car sales are down. Home sales are down. So if we were to focus on the net spending habits of people and clients (we deal with); here's the summary of inflation as it affects them:
• Food - 2.3 increase
• Food at home - 2.8% increase
• Energy - 11% increase
• Gasoline (all types) - 19.2% increase
Interesting that all of these figures are materially higher than the 2.1% reported CPI. The takeaway here is simply that disposable income is being reduced. As a country moving away from manufacturing and more towards consumer services, disposable income is imperative to a healthy and strong recover. Same goes for jobs. Perhaps this is a prime reason channels like CNBC dedicate some much talk of crude oil prices.

Example #2 forthcoming in the next Efinity Report post.

If you won't listen to us... perhaps the writers with the AP will sway you

Era of super-low mortgage rates is OVER


30-year benchmark rises to 5.05 percent from 4.81 percent
The average rate for a 30-year home loan rose above 5 percent this week for the first time since last April — just as Americans are feeling more secure in their jobs and confident about the economy, and just before the big spring home-buying rush.

Freddie Mac said Thursday that the average rate was 5.05 percent, almost a full percentage point higher than in November, when it hit a 40-year low.

Economic signals suggest the recovery is gaining momentum. New claims for jobless
benefits came in this week at the lowest in three years, and the unemployment rate has fallen nearly a full percentage point in two months. Americans are spending more and saving less.

The exception is the beleaguered housing market. Record foreclosures have forced home prices down, and last year was the worst for sales in more than a decade. About the only good news was that qualified buyers could get the deal of a lifetime from their lenders, if they had the means — and the stomach — for the market.

Now rates are rising, and analysts expect that will continue through the end of the year, to about 5.5 percent. The next few months are the busiest for the housing market — about one in three home sales happens in the spring.
It doesn't help," says Greg McBride, a senior financial analyst with Bankrate.com. "Any increase in mortgage rates takes away buying power and dilutes the incentive to refinance."

Rates have been rising since the fall, mostly because of fears that higher inflation is coming. Investors have been demanding higher yields on Treasury bonds ever since the Federal Reserve announced its program to pump up the economy by spending $600 billion to buy government debt. Mortgage rates tend to track the yield on the 10-year Treasury note.

"You'll see some effect on demand, but it's really how secure people are in their jobs and how much money they feel they have relative to their homes," says Cristian deRitis, an economist specializing in housing for Moody's Analytics.

"Many of those people just won't buy a house," says Wells Fargo senior economist Mark Vitner. "They'll hold off."

Home prices are expected to fall at least 5 percent more this year. Because of the feeling that the home isn't the failsafe investment it used to be, renting is more attractive. Especially when some analysts say it could be years before prices return to their pre-recession peak.

That may be contributing to the fact that, despite record inventory levels of affordable homes in nearly half of U.S. cities, mortgage applications continue their downward slide as buyers remain on the sidelines.

"Believe it or not, what I'm seeing, and I'm working with first-time homebuyers, they are not as affected by the interest rate as they are by getting a down payment," says Julie Longtin, a real estate agent with RE/MAX Cityside in Providence, R.I. "That's what is holding them back."

On a $200,000 loan, the payment difference between today's rate and November's is less than $100 a month — hardly enough by itself to spook a buyer.

If rates continue to rise, as many predict they will, the housing market will be in for yet more trouble. "Six percent would do serious damage if it happened in a very short period of time," said Patrick Newport, U.S. economist at IHS Global Insight.

Even 6 percent would be a bargain for homebuyers historically. Rates were in double digits through most of the 1980s. It wasn't until 1991 that rates consistently stayed below 10 percent. At the peak of the credit bubble in July 2006, the 30-year fixed mortgage was 6.76 percent.

All this leaves buyers wondering: What is the new normal for interest rates?

"We're turning to a more normal mortgage rate environment, says Guy Cecala, publisher of the trade magazine Inside Mortgage Finance. "That pretty much means the 30-year in the 6 percent range. I don't think rates will be going down." - AP writers JANNA HERRON, MICHELLE CONLIN

What this REALLY means for the market and housing over the next 3-5 years + will be detailed in the Efinity Report's next blog. Stay tuned...

Mortgage rates steady

The average rate on the 30-year fixed mortgage changed little this week.

Freddie Mac said Thursday the average rate rose to 4.81 percent this week from 4.80 percent the previous week. It hit a 40-year low of 4.17 percent in November.

The average rate on the 15-year loan slipped to 4.08 percent from 4.09 percent. It reached 3.57 percent in November, the lowest level on records starting in 1991.

Rates have been little changed this year after spiking more than half a percentage point in the last two months of 2010. Investors sold off Treasury bonds during that time, driving yields lower. Mortgage rates tend to track the yield on the 10-year Treasury note.

High foreclosures, job worries and expectations that home prices will fall further have kept many potential homebuyers on the sidelines. Historically low mortgage rates haven’t been enough to jumpstart the housing market.

To calculate average mortgage rates, Freddie Mac collects rates from lenders across the country on Monday through Wednesday of each week. Rates often fluctuate significantly, even within a single day.

The average rate on a five-year adjustable-rate mortgage fell to 3.69 percent from 3.70 percent. The five-year hit 3.25 percent last month, the lowest rate on records dating back to January 2005.

The average rate on one-year adjustable-rate home loans was unchanged at 3.26 percent.

The rates do not include add-on fees, known as points. One point is equal to 1 percent of the total loan amount. The average fee for the 30-year and 15-year loan in Freddie Mac’s survey was 0.8 point. The average fee for the five-year ARM was 0.7 point, and the fee for the 1-year ARM was 0.6 point. - JANNA HERRON | THE ASSOCIATED PRESS

In short, get your cheap money now as the inflation monster is coming.

Our 2011 Outlook (no 3-D glasses required)

Over the last 90 days I have been keeping a watchful eye on our equity markets, general economic news and perhaps more important, the US consumer sentiment. There have been encouraging signs that the economy may have finally stopped sliding into the abyss and by all accounts moving forward under the new financial paradigm. I’d like to refer to this as the “New Normal”. Unemployment has held steady, the Christmas shopping season appears to have beat expectations, the stock market has had a fantastic run over the last 180 days. GM complete its bankruptcy process and most of the largest banks have repaid the TARP money lent to them. Hey, JP Morgan Chase recorded outstanding record profits for Q4.
All of that said, before we take that collective sigh’ and pat ourselves and our fearless leaders in Washington on their backs for a job well done, I’d like to turn some our attention to a news story which was recorded by 60 Minutes in which the title Day of Reckoning and where wall street brain trust Meredith Whitney whose focus of this story was to paint a fairly bleak picture of the individual State balance sheet(s) and the windfall of potential risks. While the news story (seen here http://www.cbsnews.com/video/watch/?id=7166293n ) did have in my humble opinion a few misleading conversation points, it is true that the bulk of the attention has been paid to the national financial deficit problem, not our individual state issues (see Illinois) where these problems have been getting progressively worse over the last 10 years. The issue I am most concerned with as it directly relates to not only to Efinity’s core businesses, but our countries general way of life; the seemingly non-issue of inflation. There has been a growing undertow of consumer inflation in several areas and while gas prices tend to get the most headline coverage, if you compare just the last 6 months of the everyday costs of meat, bread, milk, corn, you’ll begin to see changes which on the onset don’t appear much (.10c to .30c) however these have been in a fairly stable gas price environment. With the highly anticipated summer gas price increase in the 20-30% range (as found in the futures market), we could see a dramatic change in the ability for many American’s to operate their daily lives as they have been. For our older members of society, it’s even worse as not only did many of them have significant capital stripping take place from 2007-2009 but there is a HUGE gap in anticipated appreciation and available returns of investment in savings and market rates. Add the growing concerns in the municipal bond markets and you’ll find the options are even more limited. So, in short order 2011 will be more of the same. A country with potential but with serious legacy problems it needs to deal with, which will come at a cost to all of us and an impediment to GDP.

Oh No They Didn't....

The US Debt Commission charged by the president on balancing the US’ budget, remitted their fiscal austerity plan. Within the proposal was a key ingredient which will greatly affect American homeownership, specifically the income-tax deduction for mortgage interest. The 18-member commission has been looking for ways to trim the federal deficit. Among the $3.8 trillion in debt-cutting options being considered by the “National Commission on Fiscal Responsibility and Reform” was initially written to include the eliminating for second homes mortgages of more than $500,000, and home-equity loans. The final release is a bit more aggressive. It includes a 12% non-refundable tax credit available to all tax payers with mortgages now caped at $500,000. NO credit from interest from second homes and home equity loans. As one might expect, the reaction from various housing industry leaders was a strident “Not A Good Idea”. With its release, the Congress and the President “must decide which tax expenditures to include in the tax code” of which mortgage interest for primary residences is specifically mentioned. I’ll highlight a few of the comments I have found around the news wires:

• “For a battered housing industry, which is struggling with a 21 percent unemployment rate among construction workers, this is absolutely the worst time to be considering changes,” said National Association of Home Builders President Bob Jones. Adding that diminishing or ending the deduction would exert further downward pressure on home prices, leaving more homeowners with mortgages larger than the value of their property and fueling even more foreclosures.
• Mortgage Bankers Association Chairman Michael D. Berman said that while his group’s members shared in the growing concern about the federal deficit, limiting the use of the mortgage-interest deduction “will have negative repercussions for consumers and home values up and down the housing chain.” Given “the fragile state” of the housing market, Berman said, “now is not the time to be scaling back incentives for homeownership.”
• Not to be left out, the National Association of REALTORS® has decided to take a wait and see approach.

There are some supports of this action, may of which are in the economics field. “The mortgage-interest deduction is to housing policy what Social Security reform has traditionally been to politics: the third rail,” says Kevin Gillen, vice president at Econsult Corp. in Philadelphia. He shares a consensus among economists is that the deduction is regressive and promotes overconsumption.

Out of pure selfish reasons, it’s no surprise that I oppose anything but a very limited change relating to interest and tax deduction on all types of homeownership. My suggestion would be to eliminate the interest deduction on all mortgages over $1.5 million and all Non-Owner properties as they typically have additional deductions taken with home improvement. This affects the super rich (or over extended) and the “investor”. The fact that it’s mentioned creates a slippery slope down the road should more severe additional cuts are required. The primary-residence tax and interest deduction is the one almost every American homeowner looks forward to as a way to be rewarded for the risks and costs of owning and maintaining a home. With almost half of the recent homebuyers consisting of first-timers, this tax and interest deduction is critical to the on-going recovery. Any changes in my opinion, even my own suggestions should not be implemented until the housing market is operating normally.


THE NATIONAL COMMISSION ON FISCAL RESPONSIBILITY AND REFORM
http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf

Does Your Mortgage Start with 4?

The better part of the last 5 months have seen us shift our attention away from Efinity Mortgage towards our Efinity Insurance platform. This was perhaps none more evident than the lack of Efinity Reports during this period. In many ways it should not have been a surprise to us when we were inundated on Friday and yesterday with phone calls from existing clients wanting to confirm their mortgage rates were secure (locked).

First off, major props to our clients who have been paying very close attention to mortgage rates both posted daily on Efinity Mortgage's website and in general new outlets. Rates have started rising by and large because of stronger than anticipated economic reports. The surprise has been that just over the last week rates have risen 0.25%. For some perspective, that's almost $50 a month on a $250,000 mortgage. That's $50 every single month you have that mortgage note and for most of us... that's a while! So if $600 might not be a big deal to you, think about $6,000 over a 10yr period. Since we're not thinking about the ramifications of these savings, might we siggest placing that money with Efinity Financial and allowing them to leverage a secondary set of college savings funds or well placed life insurance or some other proper savings plan. Hopefully we have your attention now.

A friend of mine in the business emailed me and mentioned that some people say good things come to those who wait and others suggest to strike while the iron is hot. In this case, the "iron is still hot" with rates at exceptionally low levels, but it's starting to turn, and quickly. He is correct in his announcement. We are in a new economic paradigm. It may be several decades before we see home loan rates this low again. Don't let apathy get the better of good sense. And hey think of it as a gift to give yourself...and just in time for the holidays!

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.