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For the week of Jul 20, 2009 --- Vol. 7, Issue 29 |
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Last Week in Review |
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INFLATION, ALL WE NEVER WANTED...! Or so the Go-Go's song "Vacation - All I Ever Wanted" could have been re-written this week, as whispers and glimmers of future inflation as well as some positive economic news roiled the Bond market. Overall, home loan rates worsened by about .25% across the board. Inflation at both the wholesale and consumer level came in hotter than expected via the Producer Price Index (PPI) and Consumer Price Index (CPI) reports, the latter shown in the chart below. The Consumer Price Index (CPI) rose by more than expected, and was the biggest increase in a year, mostly due to higher gasoline prices. However, a look back over the past year shows a drop in overall CPI of 1.4%...why is this? It was a year ago that a barrel of oil was $147, and today that barrel stands at $60, up from the $30 range seen earlier this year. But even when stripping out food and energy, the most recent Core CPI rose 0.2%, higher than the 0.1% anticipated - and year-over-year, Core CPI prices were up 1.7% after rising 1.8% in the 12 months ended in May. On the wholesale side, even excluding volatile food and fuel prices, Core PPI rose quite a bit more than anticipated as well. And remember, inflation is bad for Bonds and home loan rates. If this trend continues, it could have a big impact on rates later this year. -----------------------
In other news, second quarter earnings season continued, including some highlights from the financial sector. Several companies reported strong earnings, including tech bellwether Intel; JP Morgan Chase, who reported a 36% jump in profits for the second quarter; and Goldman Sachs, reporting blowout earnings. Although some of the positive headlines helped Stocks, at the expense of Bonds and therefore home loan rates, overall the week's earnings reports indicated the economic climate is still difficult. And this difficulty was seen on the retail front - and even though Retail Sales rose slightly higher than expectations, overall department stores and restaurants still showed weak results, signaling that consumers remain hesitant to spend discretionary dollars. BUT IF YOU'VE BEEN CONSIDERING A NEW CAR PURCHASE - TO BUY SOMETHING MORE FUEL EFFICIENT, OR JUST TO TAKE ADVANTAGE OF SOME OF THE GREAT DEALS OUT THERE - YOU'LL WANT TO READ THIS WEEK'S MORTGAGE MARKET VIEW, FOR IMPORTANT IMFORMATION ON A MONEY SAVING GOVERNMENT PROGRAM THAT'S DUE TO EXPIRE SOON. |
Forecast for the Week |
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It's a quiet week ahead when it comes to scheduled economic reports, but that doesn't mean the volatility will quiet down. Keep a look out on Thursday for the Existing Home Sales Report for a read on the housing market. Last week showed a decent Housing Starts number, so it will be interesting to see if Existing Home Sales shows some good news for the Housing Market. Also on Thursday, another Initial Jobless Claims report will be released. Last week, first time claims for unemployment benefits dropped by 47,000 to the lowest level since January. However, the reading is somewhat distorted by shifts in the timing of auto plant shutdowns. Usually plants would shut down in July, meaning last week's unemployment claims number would usually have been higher, but the shutdown process was accelerated due to the bankruptcies of GM and Chrysler. Therefore, the seasonal adjustment makes this number look rosier than it really is. In addition, earnings season continues with important reports from Legg Mason, Coca Cola, Dupont, Apple, Wells Fargo, Pepsi, eBay, and Xerox among others...and if these reports are good, Stocks could continue to improve, at the expense of Bonds and home loan rates. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, Bonds and rates worsened on the heels of a rally in Stocks. I'll be watching to see if Bonds can remain above key support, which would help home loan rates stabilize. As always, I encourage you to give me a call to discuss how the current rate environment might benefit you. Chart: Fannie Mae 4.5% Mortgage Bond (Friday Jul 17, 2009)
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The Mortgage Market View... |
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THAT CLUNKER MAY BE WORTH MORE THAN YOU THINK... If you have an old clunker sitting in your driveway and you're thinking about upgrading to a new vehicle, you'll definitely want to look into the Government's new Consumer Assistance to Recycle and Save (CARS) Act of 2009...as you might be able to get some cash for that clunker! The CARS Act-also knows as "Cash for Clunkers"-was passed by Congress late last month and then signed into law by President Obama. Basically, the program is designed to get older, less fuel-efficient vehicles off the road by providing buyers with a trade-in voucher when they upgrade to a new, fuel-efficient vehicle. The program offers different voucher incentives depending on the type of vehicle you trade in, as well as the gas mileage of the new vehicle you drive off in. The voucher is good on either domestic or imported vehicles, and it can be applied towards either the purchase or the lease of a new vehicle. Trading in a Car for a New Car? If you're considering upgrading your car, here's a quick look at what you can expect: IF you trade in an older car In addition, you can get an extra $1,000-for a total of $4,500-if you upgrade to a new car that gets 10 mpg better than the old car that you're trading in. Want to Upgrade an SUV, Truck or Minivan? If you're upgrading an SUV, truck or minivan, the numbers work out a little different: IF you trade in an older SUV, pickup truck or minivan... In addition, the voucher increases to $4,500 if the miles per gallon of the new truck or SUV is at least 5 mpg higher than the old one you're trading in. What's the Catch? There are a number of provisions that must be met in order to qualify for the incentive. First and foremost, the vehicle that you're trading in must have been built in the last 25 years-meaning, it's a 1984 model or newer. Second, it must only get 18 mpg or worse. Remember, the program is aimed at getting bad-mileage vehicles off the road. So, if your car gets 25 mpg, it's not the type of car this program is targeting. Additionally, the vehicle must be drivable, must be registered, and must have been insured for at least the past year. Essentially, you have to actually trade in a vehicle that you've been using, as opposed to a dead car that's been stored on blocks for a couple of years while you tried to figure out what to do with it. Should You Take Advantage of CARS? Basically, this program is designed to replace older, less fuel-efficient vehicles with new fuel efficient ones. If your vehicle is fuel efficient, you probably don't even qualify. Additionally, if your vehicle has a trade-in value that's greater than $3,500 or $4,500, the program doesn't make much sense for you. That's because the program requires your trade-in to be destroyed, since one goal of the program is to get older, gas-guzzlers off the road for good. That means, the dealership probably won't add-in much additional trade-in value. In fact, you'll probably only see a modest bump equal to the approximate scrap value of your vehicle. So, if you can get, say, $5,000 or more for your vehicle as a trade-in without the program, you're probably better off going that route. Don't Wait Too Long to Act The CARS program is supposed to run until November 1, 2009.UNLESS the funds that Congress set aside for the program run out before then, in which case, it's all over. So if you're considering this program, don't wait too long - contact a dealer about your trade in and which new vehicle you'd like to purchase or lease. The final rules and details of the program are expected to be released at the end of July. In the meantime, you may want to visit the government's official CARS website at http://www.cars.gov/ for more information-including a FAQ page-and to see if your vehicle qualifies for the program. |
The Week's Economic Indicator Calendar |
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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 July 20 - July 24
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The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is not without errors. Mortgage Success Source, LLC is the copyright owner or licensee of the content and/or information in this email, unless otherwise indicated. Mortgage Success Source, LLC does not grant to you a license to any content, features or materials in this email. You may not distribute, download, or save a copy of any of the content or screens except as otherwise provided in our Terms and Conditions of Membership, for any purpose. |