Last Week in Review
“I KNEW THE RECORD WOULD STAND UNTIL IT WAS BROKEN.” Yogi Berra. And while last week’s Jobs Report wasn’t the worst record breaker of all time, it showed a loss of 533,000 jobs during the month of November, which represented the most job losses the US has seen in 35 years. And adding more pain to the Report were heavy downward revisions for September and October, which erased an additional 199,000 jobs. In addition, last month was only the fourth time in 58 years that our economy lost over 500,000 jobs.

So what does this mean for Bonds and home loan rates? We first have to acknowledge that we are not in a typical trading environment, where weak or negative economic reports always lead to improved pricing for home loans and vice versa. The dynamics of hedge funds de-levering - where fund managers are selling all types of securities with whatever timing they need to, in order to raise capital - have caused unprecedented volatility of late, and it is not quite clear when that will end.

The Fed has indicated that they would like to be a buyer of Mortgage Bonds, which has resulted in attractive, lower rates right now. But as stated above, the trading environment is extremely volatile, and opportunities to capitalize on lower rates that make sense should be taken advantage of. There have been recent rumors of interest rates being brought down towards 4.5% by the Treasury. This irresponsible release included no definitive plan, no indication of who might qualify, or what the restrictions would be. Like many other recent legislative “solutions”, the restrictions might be very tight, with income limits set very low, and as a result, helping very few people. Remember, it may make sense for you to act now, and take advantage of current historically low rates…with the possibility of refinancing should rates decline further.

In other news to note from last week, the Bank of England and the European Central Bank both cut their key benchmark interest rates in an effort to revive their sagging economies. The reduction in rates was expected as part of a global coordinated effort, and our Fed is widely expected to cut its benchmark rate during its meeting on December 16. While a cut by the Fed often causes home loan rates to rise - because a Fed rate cut can lead to inflation, which is the arch enemy of Bonds and home loan rates - the deflationary environment we are currently in may prevent home loan rates from worsening significantly after the Fed cut.

Bonds and home loan rates tested their best levels of 2008 throughout last week, but could not improve beyond them. As a result, Bonds and home loan rates ended the week slightly worse than where they began…even in the midst of rumors of rates declining as mentioned above.

GAS PRICES SURE HIT A RECORD EARLIER THIS YEAR, BUT NOW THAT THEY HAVE IMPROVED, THE IRS HAS ISSUED NEW MILEAGE RATES FOR 2009. SEE THIS WEEK’S MORTGAGE MARKET VIEW FOR ALL THE DETAILS!

Forecast for the Week
We will likely see another volatile Friday this week, with the release of several important reports at 8:30am ET. First we have the Producer Price Index, which measures inflation at the wholesale level. Given the recent whispers of deflation, this will be an important report to watch. Consumer Sentiment will also be released?but given the state of the economy, the results likely won?t be much of a surprise.

In addition, we?ll get a read on consumer spending patterns with November?s Retail Sales Report. This Report is a measure of the total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation. Black Friday kicked off the holiday shopping season last week and the National Retail Federation amazingly estimated that shoppers spent 7.2% more than last year?but this is likely a result of the deep discounting seen by retailers, and it could well be that many shoppers who normally wait until December to get started on holiday purchases went out early to take advantage of the sales. Don?t be surprised if this is a horrible report, as not only have the holiday shopping lists become shorter, but the amount spent for each individual has likely been reduced. In any event, it will be important to see what the report reveals, as a lousy report should be friendly towards home loan rates.

Remember, as Bond prices move higher, home loan rates move lower. And as you can see in the chart, Bonds have stalled out in their improving direction for the time being, after making some great gains over the last month. Home loan rates currently stand at historic lows.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

This week, several scheduled items could cause some more manic movements in the markets…and the biggest of all could be the Fed Policy Statement and Rate Decision that will come on Wednesday, following the wrap of the Fed’s regularly scheduled Federal Open Market Committee meetings. Remember: The Fed joined with other central banks from around the world and cut their benchmark Fed Funds Rate earlier this month to help restore confidence to the financial markets. The Fed is widely expected to cut its benchmark rate again this week, and some people are wondering if the Fed could go where it has never gone before and bring the rate below 1%.

Other important reports to note this week include Wednesday’s Durable Goods Orders, which is a measure of how many “durable” or non-disposable goods have been purchased during the previous month, and Thursday’s Gross Domestic Product (GDP) Report, which is the broadest measure of economic activity. Also, on Friday we will get the details on the Fed’s favorite gauge of inflation, the Core PCE (Personal Consumption Expenditure) data, from the Personal Income report. Each of these reports will be telling, given the growing talk of recession.

Before all of this, there will also be housing news in store with Monday’ New Home Sales Report. Last week, we learned that Existing Home Sales jumped to a thirteen-month high as foreclosures continue to drive down home prices, and it will be important to see if a similar trend is occurring with New Home Sales.

If the economic news this week is dismal, Bonds and home loan rates may be the beneficiary and find some improvement…but the words and actions of the Fed are likely to be the primary driver for interest rate action this week. As always, I will be watching closely and would welcome your calls with any questions you may have on your own situation, and how the changes of the week may impact you.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

Last Week in Review

“THERE IS NOTHING WRONG WITH CHANGE, IF IT IS IN THE RIGHT DIRECTION.” Winston Churchill. And the housing and mortgage industries experienced a great change in the right direction last week, as the Federal government moved to support Fannie Mae and Freddie Mac, causing Bonds and home loan rates to improve significantly and end the week around .25 percent better than where they began.

So why did the Federal government take action? Fannie Mae and Freddie Mac both have issued many Bonds which over time mature, and Fannie and Freddie need to pay back the principal on the maturing Bonds. The way they raise capital to pay these maturing Bonds is to issue new Bonds, which happens every month. And as long as Fannie and Freddie can sell new Bonds this system works well.

But the problems in the mortgage industry have reduced investor appetite to purchase these Bonds. Without the ability to sell new Bonds, Fannie and Freddie are less able to meet the capital requirements to pay off the maturing Bonds. And if Fannie and Freddie were to default and become insolvent, the mortgage and housing industries…and homeowners across our nation… would face even more struggles than we are seeing now.

So the government’s decision to back Fannie Mae and Freddie Mac is great news for homeowners, because it ensures the continued liquidity of conforming loans nationwide and it ensures that buyers of this type of Bond have a safe investment going forward.

In other Bond-friendly news, we saw good news on the inflation front last week. Overall Import Prices declined for the first time since December, thanks in part to the recent plunge in oil and gas prices. And Wholesale Prices, which help measure inflation, fell in August for the first time this year.

Overall, the good inflation news and the Fed’s decision about Fannie and Freddie should lead to improving Bond prices and home loan rates in the long-term. With home loan rates at such low levels, it’s a great time to review your mortgage situation and make sure you have the rate and program that best suits your current financial needs. I’d be glad to do a quick review for you - and your friends, family members, neighbors or coworkers as well - so just give me a call or email, I’ll look forward to hearing from you!

Forecast for the Week  

This week several important economic releases will arrive, and the flavor of these headlines will help determine if things can continue to move in an improving direction. Tuesday’s Consumer Price Index (CPI) report will show us inflation at the consumer level - that is, how much more expensive goods and services are for consumers this month over last month. If CPI brings more good news on the inflation front, Bonds and home loan rates may add to their improvements from last week.

Also on Tuesday, the Fed will release their latest Policy Statement and Interest Rate Decision. It is widely believed that the Fed will keep the Fed Funds Rate at 2% given the lessening concerns over inflation, but it will be important to see if the Fed’s statement gives us a hint as to what their plans are for the near future.

Later in the week, we will get a read on the housing market via the Housing Starts and Building Permits Report on Wednesday, as well as a look at the manufacturing sector via the Philadelphia Fed Report on Thursday. This monthly survey of manufacturing purchasing managers conducting business around the tri-state area of Pennsylvania, New Jersey, and Delaware is one of the most highly watched manufacturing reports. If manufacturing appears to be getting stronger in this region, Stocks could move higher at the expense of Bonds and home loan rates.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. As you can see in the chart below, Bonds and home loan rates have improved significantly over the past month, but got stopped in their tracks last week by a technical “ceiling of resistance”. I will be watching closely to see if Bonds and home loan rates can break this barrier and find more improvement in the weeks ahead.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

We will likely see another volatile day on Friday this week, with the delivery of two high impact reports with the potential to shake things up. Both set for release at 8:30am ET, we will see the wholesale inflation measuring Producer Price Index, as well as the Retail Sales Report. It will be important to see if the recent drop in oil prices has made an impact on either the cost to manufacture (PPI) or if it has invigorated retail purchases due to the savings in the cost to fuel vehicles.

Inflation at any level remains a strong concern, so the Producer Price Index will be of high interest to many, including the Fed. On the Retail Sales Report, remember that a strong Report would be good for the Stock market - which stands to reason, as it would indicate continued consumer confidence and dollars being poured into the economy. But stronger economic news and higher stock prices will likely worsen Bonds and home loan rates. The aforementioned 200-day Moving Average, seen below in blue, is an important threshold in determining the direction of home loan rates in the coming weeks. A convincing move above this line would be good news for Bonds. Let’s watch this closely, as it may represent some opportunities ahead.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. As you can see in the chart, Bonds and home loan rates managed to stay above the 200-Day Moving Average. I will be watching closely to see if Bonds and home loan rates can remain above this important level.

As you know, Treasury Secretary Paulson and Federal Housing Finance Agency Director Lockhart announced that “FHFA has placed Fannie Mae and Freddie Mac into conservatorship.”  The government (FHFA) will now be managing Fannie Mae and Freddie Mac for the foreseeable future.
 
A leading Washington DC firm provided an analysis of possible implications of this event. Here are some excerpts:
Overview:
To stabilize and to stimulate the housing and financial markets, the Federal Government is taking the following key steps.
- The GSEs will be allowed to increase their MBS portfolios through the end of 2009
- Treasury will be initiating a program to purchase GSE mortgage-backed securities (through December 31, 2009)
- Treasury has established a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac and the Federal  Home Loan Banks
Short term impact:
For the housing industry, the short-term impact of the Government takeover appears to be positive.
- Mortgage rates should decline
- Liquidity should be increased
- Some housing experts feel house price may stabilize sooner and the level of further house price decline will be moderated as a result
Potential Impact:
- There could be a mini-refinance boom if the rate decline materializes.
- Hedging of servicing portfolios and pipeline problems will have to be addressed
- FHA appeared on the way to 50% market share later this year.  

More to come!

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

Last Week in Review  
 ”THE FIRST THING A HURDLER LEARNS…IS HOW TO FALL.” Tonie Campbell, 1988 Olympic Bronze Medalist, 110m Hurdles. And that’s a lesson Bonds and home loan rates have now learned, too. After finally leaping over a big technical hurdle called the 50-day Moving Average (a moving average is the average closing price of a financial instrument over a given time period) for the first time in weeks, Bonds and home loan rates then quickly plunged to some of their worst levels of the week.

So what happened? Bonds and home loan rates began the week facing a tough inflation hurdle, when the Producer Price Index (PPI) came in at the biggest year-over-year increase in 27 years. The Core PPI, which excludes volatile food and energy prices, also came in at the biggest year-over-year increase since 1991. However, the recent drop in oil prices kept the topic of inflation from being too high a hurdle for Bonds and home loan rates, and they managed to leap above the 50-Day Moving Average to some of their best levels in weeks on Wednesday.

However, the quick rise in Bond prices pushed them into “overbought” territory, which pulled the reins back on their momentum. Combining this with Friday’s news that the Korea Development Bank may be interested in acquiring Lehman Brothers - which added confidence to the financial sector, causing traders to move money from Bonds into Stocks - caused Bonds and home loan rates to stumble and end the week only slightly improved than where they began.

Forecast for the Week  
And if any improvement is in store, Bonds and home loan rates will again have several big obstacles to face this week. Right off the bat, we will get a read on the housing market as the Existing Home Sales report will be released on Monday followed by the New Home Sales Report on Tuesday. Also on Tuesday, the minutes of the Fed’s latest meeting will be released, and it will be important to see if any comments about inflation will cause Bonds and home loan rates to trip up.

And more hurdles still will follow in the last half of the week. On Thursday, the Gross Domestic Product (GDP) Report will be released and on Friday we will get the details on the Fed’s favorite gauge of inflation, the Core PCE (Personal Consumption Expenditure) data, from the Personal Income report. If either of these reports show inflation as a big barrier looming ahead, Bonds and home loan rates may not be able to regain any headway before the markets close early on Friday at 2:00 pm in advance of the Labor Day holiday weekend.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. As you can see in the chart, Bonds and home loan rates managed to stay above the 50-Day Moving Average line despite the losses they incurred. I will be watching to see if Bonds and home loan rates can surpass additional hurdles and regain some ground this week.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

Last Week in Review

Bonds began the week trading lower due to inflation fears after crude shipments from Georgia were halted amid the Russian bombardment of the country. However, some poor economic reports (remember, bad economic news is bad for Stocks and typically causes money to flow from Stocks into Bonds)…including poor earnings reports from Macy’s and farm equipment maker Deere & Co….helped Bonds and home loan rates regain some of the early ground they had lost.

Bonds continued to rally in the latter part of the week despite the hotter than expected read on consumer inflation in the July Consumer Price Index (CPI) report. According to the index, consumer prices increased 5.6% over the last year, which is the biggest year-over-year increase since January 1991. However, Bonds shrugged off the bad inflation news and traded higher because this hot reading came during the time that oil prices spiked to $147 a barrel in the month of July. Since then, oil prices have dropped significantly and are now $113 a barrel, which left traders thinking that next month’s CPI reading may be tamer. And Bonds and home loan rates continued their rally on Friday in response to some tame inflation news within the Empire State Index Report.

While inflation has been a tough opponent for Bonds and home loan rates, the technical factor known as the 25-day Moving Average (a moving average is the average closing price of a financial instrument over a given time) has been an even tougher opponent of late. Bonds and home loan rates have attempted to improve past this level several times over the last few weeks, finally succeeding on Friday to end the week nearly unchanged from where they began.

Forecast for the Week

Tuesday is an especially important day to stay tuned to the markets as two reports…the wholesale inflation measuring Producer Price Index and the state of the housing market measuring Housing Starts and Building Permits Report…could impact the direction of Bonds and home loan rates.

Thursday is another important day to note as the Philadelphia Fed Report will be released. This monthly survey of manufacturing purchasing managers conducting business around the tri-state area of Pennsylvania, New Jersey, and Delaware is one of the most-watched manufacturing reports. If manufacturing is stronger than expected in this area, Stocks could move higher at the expense of Bonds and Home Loan Rates.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. As you can see in the chart, Bonds and home loan rates were able to battle back and end the week near where they started. However, a new level of resistance at the 50-day Moving Average (seen as the solid Black Line) may have an affect on the direction of home loan rates. I will be watching to see whether Bonds and home loan rates can beat out their next opponent to reach even better levels.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

Several reports that are scheduled for this week could determine whether Bonds and home loan rates can manage a bigger comeback than they did last week. Definitely stay tuned for the Department of Labor’s big Jobs Report scheduled for Friday, which will show the number of jobs lost or gained in July. Remember: The Department of Labor averages their numbers, and part of each month’s report includes “revisions” to the several prior months’ numbers. A positive report could be good news for Stocks, but bad news for Bonds and home loan rates, so it will be especially important to see what numbers are posted on the “scoreboard.”

Also keep an eye on Thursday’s Gross Domestic Product (GDP) report from the Commerce Department. GDP is the broadest measure of economic activity…and since good economic news typically causes money to flow into Stocks and out of Bonds, this report will be important to watch. Remember when Bond prices move higher, home loan rates move lower…and vice versa. It will be important to see if this week’s news can help or hinder Bonds and home loan rates in their attempt to bounce back.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

We could be in for another explosive week, as several reports will show the impact inflation continues to have on the economy. Tuesday will bring the wholesale inflation measuring Producer Price Index as well as the Retail Sales Report, which measures the total receipts of retail stores. Since these numbers reflect consumer spending patterns, this report will show how much of an impact inflation and high oil prices are having on consumer pocketbooks.

On Wednesday, the Consumer Price Index report will be released, and this widely-watched report will reveal the level of inflation at the consumer level since it shows how much more expensive goods and services are this month over last month. Also, on Wednesday, we’ll get to see the minutes of the Fed’s last Federal Open Market Committee meeting. These minutes could cause some sizzle in the markets especially if they give any indication of what the Fed will do about its benchmark rate, the Fed Funds Rate, at the next meeting.

Thursday we will see a read on the housing market via the Housing Starts and Building Permits Report. We’ll also learn how much of an impact inflation has had on manufacturing via the Philadelphia Fed Report, which is a monthly survey of manufacturing purchasing managers conducting business around the tri-state area of Pennsylvania, New Jersey, and Delaware.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. The chart shows how the rally for Bonds and home loan rates fizzled late last week. And since inflation also tends to stop rallies for both Stocks and Bonds, I’ll be watching closely as always. If this week’s reports indicate inflation is heating up, this could cause Bond pricing and home loan rates to worsen in response.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

There’s a holiday shortened week ahead, as the financial markets will be closed on Friday in observance of Independence Day. But…there could still be lots of action this week, particularly with the Department of Labor’s Jobs Report scheduled for Thursday, just ahead of the long weekend. A positive report could be good news for Stocks, but bad news for Bonds and home loan rates, so it will be especially important to watch all the fireworks that follow the headlines.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. The chart below shows how the action in the Bond market improved last week, helping home loan rates to improve as well. So as always, I will be watching closely during the coming week.

If inflation continues to shake up the markets or if the news on employment is surprisingly good…the action for Bond prices and home loan rates could change direction and worsen.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

The coming week is chock full of economic reports that will likely have a big influence on the financial markets. We start off on Tuesday with a report on Consumer Confidence, and also the beginning of Fed meetings which will culminate in a Rate Decision and Policy Statement on Wednesday afternoon at 2:15pm ET. It is widely believed that the Fed will keep the Fed Funds Rate at 2%…but what will be most interesting is the wording of their carefully crafted Policy Statement. If it gives hints of their intent to hike rates in the near future to help fight inflation, it could actually be good news for Bonds and home loan rates.

A look at sales numbers in the new and existing housing markets will come Wednesday and Thursday, and Friday will wrap up the week with a bang as the Fed?s favorite gauge of inflation, the Core PCE (Personal Consumption Expenditure) data will be released. Since this will be following the Fed?s announcement on Wednesday ? will the Fed look smart if they?ve held rates steady, or perhaps come under criticism if the inflation numbers are super-heated? Could be a greasy few days for the Fed, so stay tuned.

Remember that when Bond pricing moves higher, home loan rates move lower ? and then take a look at the chart. You can see how in recent days, Bonds have moved higher, but are now battling an overhead ?ceiling? of technical resistance. If Bonds and home loan rates are to improve in the near future, it will take some very Bond-friendly news to help crash through the ceiling that has stopped progress in its tracks for the time being.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com/