Understanding Your Credit Score

Your credit score is one of the biggest determining factors in your ability to get a quality loan, and it is far more complex than just a three-digit number.

Yahoo! Personal Finance recently wrote an in-depth piece about understanding the intricacies of your credit score and what it means.

According to the article, “consumer research conducted by the Consumer Federation of America and VantageScore Solutions shows that many Americans don’t really understand their credit scores.”

The lower your credit score, the higher interest you will pay on loans and any line of credit. Understanding the basics of credit scores can help you achieve your goals, including home ownership.

Click here to view the article and learn more about credit scores.

How to Get Finances Back on Track After Being Unemployed

If you are back in the workforce after a layoff, you might be wondering how to address financial issues.

For many re-employed people, a new paycheck might not solve all money problems. According to a survey by CareerBuilder, among workers who were laid off in 2010 and found new jobs, 61 percent took pay cuts.

With money tight, pay attention to urgent expenses first.

Attend to maintenance on your home and car. If you put off medical care for yourself and your family, that should be attended to. Advisors for Money magazine say it’s important to get the basics back on track.

The next priority is paying off credit card debt you have accumulated, paying more on the card with the highest interest rate first. Big credit card debt can harm your credit rating.

Paying off a home-equity line of credit is less urgent. The interest is tax deductible. Since the debt is secured, it won’t affect your credit score very much.

Since you have probably used all or most of your cash reserves, it’s important to rebuild them at the same time. If you have $500 a month in discretionary money, advisors recommend that you put $300 toward debt and $200 toward savings.

Next comes your retirement fund. Even if you can only manage a very small amount, contribute to your new company’s 401k plan right away.

If you don’t have enough cash to save and pay down debt, plus put a small sum into your retirement plan, it might be wise to refinance your mortgage. Especially if you have significant home equity, it will be easier to do now that you are employed.

Once you have met these goals, you will have more money to put into living life instead of playing catch-up.

This Week's Market Commentary.

This week brings us the release of seven relevant economic reports for the bond market to digest. We are also heading into corporate earnings season, which could lead to fluctuations in the stock markets.

If earnings come in lighter than estimates, the stock markets may fall, leading to an influx of funds into bonds. But if earnings and forecasts are strong, the major stock indexes may rally, pulling funds from bonds and leading to higher mortgage rates.

There is no relevant economic news scheduled for release tomorrow. The first report of the week comes Tuesday morning but it is the least important one. February’s Goods and Service Trade Balance will be posted early Tuesday morning. This data gives us the size of the U.S. trade deficit, but unless it varies greatly from forecasts, it likely will not cause much movement in mortgage rates. Current forecasts show a $45.7 billion trade deficit.

The first important report will be posted early Wednesday morning when the Commerce Department will release March’s Retail Sales data. This piece of data gives us a measurement of consumer spending, which is very important because consumer spending makes up two-thirds of the U.S. economy. Forecasts are calling for a 0.5% increase in sales last month. If we see a larger increase in spending, the bond market will likely fall and mortgage rates will rise. However, a weaker than expected reading could push bond prices higher and mortgage rates lower Wednesday.

The Federal Reserve will post its Fed Beige Book report at 2:00 PM ET Wednesday. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be considered favorable for bonds and mortgage pricing.

The two Treasury auctions are scheduled for Wednesday and Thursday. There is a 10-year Treasury Note sale Wednesday and a 30-year Bond sale Thursday. We could see some weakness in bonds ahead of the sales as investing firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing Wednesday and/or Thursday afternoon.

Thursday’s important data comes when the Labor Department will post March’s Producer Price Index (PPI) at 8:30 AM ET. It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond’s future fixed interest payments, leading to higher mortgage rates. A slight increase, or better yet a decline in prices, would be good news for the bond market and mortgage rates. Current forecasts are calling for a 1.0% increase in the overall reading and a 0.2% rise in the core data.

The remaining three economic reports will all be posted Friday morning. This first will be March’s Consumer Price Index (CPI). This index is one of the most important pieces of data we see each month. It is similar to Thursday’s PPI but measures inflationary pressures at the consumer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors, leading to bond selling and higher mortgage rates. As with the PPI, there are two readings in the index that traders watch. Analysts are expecting to see a 0.5% increase in the overall readings and a 0.2% rise in the core reading. If we see larger increases, we could get higher mortgage rates Friday.

March’s Industrial Production data will be posted at 9:15 AM ET Friday. It gives us a measurement of output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for an increase in production of 0.6%. This data is considered to be only moderately important to rates, so it will take more than just a slight variance to influence bond trading and mortgage pricing.

The final release of the week is the University of Michigan’s Index of Consumer Sentiment at 9:55 AM ET Friday. Their consumer sentiment index will give us an indication of consumer confidence, which hints at consumers’ willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial situations, they probably will delay making that large purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March’s 67.5 reading. Current forecasts are calling for a reading of approximately 66.0.

Overall, look for the most movement in rates the middle part of the week. The Retail Sales and CPI reports are the biggest names on the agenda. Either of them can cause significant movement in the markets and mortgage rates, so either Wednesday or Friday will probably be the most active day of the week. Look for the stock markets to influence bond trading and mortgage rates the first part of the week, but we can expect to see the most movement in rates the latter part.

Lower Loan Limits Coming October 2011

At the beginning of the mortgage meltdown a couple of years ago, Congress enacted emergency legislation raising the limits on High Balance Conforming Loans.

These loans are designated “conforming,” meaning lower interest rates and typically a slightly easier transaction to get approved and closed when compared to Jumbo (or non-conforming) financing. The High Balance variety is only available in designated high cost areas, like the San Francisco Bay Area.

Currently the “temporary” limit on these loans is $729,750. This means that if you put 20% down on a $900,000 home, you can get a conforming loan in the amount of $720,000. Effective October 1, 2011 the emergency legislation expires and is not expected to be extended. This lowers this High Balance Conforming Loan to $625,500.

So, what does that mean to you? If you buy the same $900,000 home and put 20% down, your loan will now be considered a Jumbo loan. Rates on Jumbo loans are typically 1-1.5% higher, so if today you could get that loan for, say, 5% your payment would be $3865.12. The same loan amount using the Jumbo rates would be 6-6.5%, bringing your payment to $4550.89. Over 30 years, that totals over $246,000! The other option would be to put a larger down payment on the property, to the tune of nearly $100,000.

The important thing to note is that if you are looking for a loan to purchase a home, or refinance the one you already have, now is the time to move forward. The limit will remain at the higher point until the first of October, giving home buyers the spring and summer seasons to purchase a property before the high limits are gone.

To find out what the current loan limit is in your area, you can access the Fannie Mae website to see a county-by-county spreadsheet.

According to Alan Russell, a local mortgage professional, “The higher limits have really helped people get into homes here in the Bay Area. Once those limits reduce, there will be fewer options for those trying to get into the real estate market. I’ve been talking to all my buyers and giving them fair warning that the time to move is definitely now.”

The "Mom Cave"

It’s new, it’s fun, and it’s strictly personal!

Now that the “man cave” has become an established custom in homes, women have taken the cue to establish a spot of their own. Forget men’s huge TVs, theater chairs and eating spots, where they do manly, messy, sporting things. A woman’s personal place is entirely different.

Whether it was formerly a guest room, a place next to the family room in the basement, or any unused space, the “mom cave” is generally filled with personal mementos and comfort items. It’s a room they can call their own.

Many women, not just moms, are taking over a space in their homes and turning it into a haven where they can relax and pursue personal interests. Decorators are applauding the trend.

Here’s what’s needed to create the cave: A place to sit, storage space, an area to do what they want to do, such as scrapbooking, and space for occasional visitors. The walls can be decorated with old or new photographs in fun frames, and bright wall colors or fancy wallpaper served as a background.

New York designer Elaine Griffin embraces the concept and recently partnered with Homegoods in Manhattan to show the new decor and space suggestions. She says the mom cave is where a woman, who nurtures everyone else, goes to nurture herself.

Griffin loves color. She says mom caves should be fun, feminine and highly personalized. They should include a reading place, probably with a nice throw on the arm of a chair, or a chaise lounge, a bookcase painted in a bright color, a fancy area rug, and maybe boxes of brightly-colored file folders and lamp shades that reflect a woman’s tastes.

If they don’t have a whole room, Griffin suggests taking over a spot, such as under a stair landing, for a sanctuary using narrow console tables, a rug and armchairs. Or part of the family room or dining room could be captured for their own.

Last Chance: 3.5 Percent Down

Mortgage industry changes: Low rates and terms may soon be history

You are going to be hearing a lot about restructuring the mortgage industry in the next months and years.

But the bottom line for home buyers is buy now and get financing in place by as early as May. The great terms of recent years will soon be gone, and probably gone forever.

Experts say you will probably never again see down payments in the 5 percent range (even now becoming harder to find) or 30-year fixed rates under 5 percent.

The median down payment in nine major U.S. cities rose to 22 percent late last year. This was the highest requirement since 1997 on properties purchased through conventional mortgages, according to a Wall Street Journal report.

In many areas, however, a down payment of only 10 percent of the mortgage amount could be available for people with high credit scores.

The lowest down payments are still offered by the Federal Housing Administration, FHA. They will finance a home with a 3.5 percent down payment.

But a recent Obama Administration white paper on the mortgage industry hints that this very low down payment might change as the federal footprint in the mortgage market shrinks.

According to CNN Money, Congress will be considering raising FHA down payment requirements, approving higher insurance fees for FHA mortgages, and changing rules for ‘qualified’ mortgages. This could mean higher interest rates for consumers and higher down payments, perhaps up to 30 percent.

With its low down payment requirements, low interest rates, and lower credit score requirements, FHA now has a 30 percent market share in the mortgage arena but plans are to reduce its activity to just 10 percent.

Administration officials say the planned process could take some time, but it might include phasing out federal backing of Fannie Mae and Freddie Mac. Since the mortgage crisis began, the government has bailed out the federally backed entities to the tune of $150 billion.

Life Without Fannie and Freddie?

What would happen if loan giants Freddie Mac and Fannie Mae were shut down? A recent New York Times article explains that if the government eventually shuts down these companies, the 30-year fixed-rate mortgage loan could be a thing of the past.

Homeownership as we know it could change drastically, with the fixed-rate loans at risk for extra fees and high rate increases for those in urban and rural areas.

“Lenders could charge fees for popular features now taken for granted, like the ability to “lock in” an interest rate weeks or months before taking out a loan,” according to the article.

Fannie Mae and Freddie Mac carry 90% of new mortgage loans post-recession as many lenders can’t afford to make loans that aren’t government insured. The 30-year loan has been the popular option since it was introduced in 1954 by an act of Congress, and most have been issued only with government support.

Read more about the possible outcome of Fannie Mae and Freddie Mac being shut down and what would mean for mortgage rates here.

Avoiding Foreclosure

When the stress of a possible foreclosure rises, it is important to remember that there are many resources out there to help avoid it. The programs and agencies below all specialize in helping people avoid foreclosure on their homes:

U.S. Department of Housing and Urban Development (HUD)
800-569-4287
http://www.hud.gov/local/ca/homeownership/foreclosure.cfm

HUD Avoidance Counseling
http://www.hud.gov/offices/hsg/sfh/hcc/fc/

Making Home Affordable Program
888-995-HOPE
http://www.makinghomeaffordable.org/

Housing California
916-447-0503
http://www.housingca.org/nr/resource/foreclosure_resources/

State of California – Consumer Home Mortgage Information
http://yourhome.ca.gov/

Fannie Mae Resource Center
800-732-6643
http://www.fanniemae.com/homeowners/index.html

Project Sentinel – Redwood City counseling agency
(HUD Approved Agency)
888.331.3332
http://www.housing.org

Neighborhood Counseling Services – Silicon Valley
(HUD Approved Agency)
408-279-2600
http://www.nhssv.org/foreclosure-counseling.htm

Neighbor Works America
202-220-2300
http://www.nw.org/network/foreclosure/default.asp

National Foreclosure Mitigation Counseling
202-220-6314
nfmc@nw.org

The important thing to remember is that foreclosure isn’t always inevitable, and there are many programs and agencies ready to help. Share these resources if someone you know is going through a possible foreclosure on their home.

Shopping Around For A Mortgage

It is important that while shopping for a mortgage to not solely focus on rates, but to shop for a great loan consultant. Anyone can quote a rate, but knowing you’re with a true professional that can deliver makes all the difference.

Also, many lenders will quote rates without taking into account where the property is, what your credit rating is, or other very important factors that may affect the actual rate you and your property qualify for.

Here’s the inside scoop on how to do it right.

Always make sure you are working with an experienced, professional lender. The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way. But how can you tell?

Here are four simple questions your lender absolutely must be able to answer correctly. If they do not know the answers immediately leave and go to a lender that does.

1. What are mortgage interest rates based on?

The only correct answer is Mortgage Backed Securities or Mortgage Bonds, not the Fed or the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. Do not work with a lender who has their eyes on the wrong indicators.

2. What is the next Economic Report or event that could cause interest rate movement?

A professional lender will have this at their fingertips. To receive an up-to-date weekly calendar of weekly economic reports and events that may cause rates to fluctuate, contact us today.

3. When Bernanke and the Fed “change rates,” what does this mean… and what impact does this have on mortgage interest rates?

The answer may surprise you. When the Fed makes a move, they are changing a rate called the “Fed Funds Rate”. This is a very short-term rate that impacts credit cards, credit lines, auto loans and the like. Mortgage rates most often will actually move in the opposite direction as the Fed change, due to the dynamics within the financial markets.

4. What is happening in the market today and what do you see in the near future?

If a lender cannot explain how Mortgage Bonds and interest rates are moving at the present time, as well as what is coming up in the near future, you are talking with someone who is still reading last week’s newspaper, and probably not a professional with whom to entrust your home mortgage financing.

Be smart… Ask questions… Get answers!

More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life but we do this every single day. It’s your home and your future. It’s our profession and our passion. We’re ready to work for your best interest.

To Own or To Rent?

Purchasing a home requires a thoughtful decision. For some, leaving a rented apartment is difficult due to its financial flexibility; however choosing homeownership can be financially rewarding.

Here are some things to keep in mind when considering buying a home:

Undecided?

Don’t Wait Until It’s Too Late
Buyers sitting on the fence while waiting for the “prices to go down” will miss out on long-term appreciation gains and possible tax advantages.

A Smart Investment
Renting does not provide equity benefits. Make your money work for you by building equity in your own home and benefiting from possible tax advantages* as a homeowner.

Good News!

High Inventory
There is currently a greater selection of homes for sale on the market. Sellers are motivated and many homes are priced to move! That means you have a better chance of finding the home that best fits your lifestyle and needs.

Motivated Sellers
Because the market is moving more slowly, some sellers may be highly motivated to participate in special financing programs such as buying down the interest rate on your loan. This makes homeownership much more affordable than you think.

Finding the Right Loan For You
A loan consultant can provide you with a wide selection of mortgage options that have payment structures to best suit your individual needs. As a full service mortgage banker and broker, Princeton Capital can offer many loan options along with competitive pricing. They have greater control in the decision making process from start to finish, so your loan can close faster with more flexible terms.

Tips for Buying a Home

There are many pitfalls you can avoid when you are in the market to buy a new home. Here are just a few tips and strategies to help you prepare for success:

Know your credit score.

You may be able to get a better mortgage rate and more favorable loan terms by restructuring some of your balances on credit cards, car loans, etc. Mortgage professionals help you correct errors on your credit report and determine which balances to restructure or pay off in order to improve your credit score.

Know how much you can spend and determine how much you can afford. Mortgage professionals can help you:

• Finance your home based on your monthly payment comfort level
• Determine how much cash to use as your down payment and where to get these funds
• Understand your before and after-tax monthly payments
• Restructure some other debt you may have to free up more monthly cash flow that enables you to improve your home buying budget

Don’t get caught in the “pre-approval” / “pre-qualification” trap.

It is always better to get a full approval / loan commitment from a mortgage professional before you even start looking for a home. Many mortgage brokers and lenders will give you a “pre-approval” or “pre-qualification”, but these are often meaningless. What you really need is a bona fide commitment from a mortgage lender that you are in fact approved for financing. Many real estate transactions have been ruined because buyers, sellers and Realtors have counted on “pre-approval” letters that proved meaningless.

Determine whether to rent or buy a home based on timeframe, budget and local market conditions.

Mortgage professionals help you run the numbers to determine if it is better for you to rent or buy a home based on your individual circumstances.

Develop a strategy for financing your closing costs, home improvements and furniture expenses.

A home purchase is a significant financial commitment. Mortgage professionals help you understand the costs involved in home ownership and help you develop a financial strategy for dealing with these costs ahead of time.

Evaluate the mortgage products that will work best in your situation.

Remember, it is far better to find a mortgage professional who can help you implement the best strategy with competitive interest rates than for you to shop for the lowest rate with the wrong strategy.

7 Things You Should NOT Do When Applying For A Home Loan

This is a list of things to steer clear of when you are seeking to obtain financing for a home. If you do any of these things, please contact your loan officer immediately.

Even if you have been pre-qualified, we can help you re-qualify.

1. Don’t buy or lease an auto!

Lenders look carefully at your debt-to-income ratio. A large payment such as a car lease or purchase can greatly impact those ratios and prevent you from qualifying for a home loan.

2. Don’t move assets from one bank account to another!

These transfers show up as new deposits and complicate the application process, as you must then disclose and document the source of funds for each new account. The lender can verify each account as it currently exists. You can consolidate your accounts later if you need to.

3. Don’t change jobs!

A new job may involve a probation period, which must be satisfied before income from the new job can be considered for qualifying purposes.

4. Don’t buy new furniture or major appliances for your “new home”!

If the new purchases increase the amount of debt you are responsible for on a monthly basis, there is the possibility this may disqualify you from getting the loan, or cut down on the available funds you need to meet the closing costs.

5. Don’t run a credit report on yourself!

This will show as an inquiry on your lender’s credit report. Inquiries must be explained in writing.

6. Don’t attempt to consolidate bills before speaking with your lender!

The loan officer can advise you if this needs to be done.

7. Don’t pack or ship information needed for the loan application!

Important paperwork such as W-2 forms, divorce decrees, and tax returns should not be sent with your household goods. Duplicate copies take weeks to obtain, and could stall the closing date on your transaction.

What Google’s New Algorithm Means for Real Estate

A couple of weeks ago Google rolled out a new algorithm used to calculate what shows up highest in their search engine results, and it is having a dramatic effect on real estate in particular.

According to Google, 11.8% of search queries are significantly different after this not-so-subtle change in the formula.

What does this have to do with real estate? Real estate searches typically benefit most from what are referred to as “long tail searches” – searches with phrases, such as “homes for sale in San Mateo near downtown.”

Now these long-tail search queries will be treated differently by Google’s algorithm, though exactly how this will play out is unclear at this point. Real estate is an industry particularly affected by this change due to the nature of online searches regarding it, which tend to be pretty specific.

According to a recent press release, Google implemented the changes to their system in order to hamper content-farm sites (internet spam sites looking to gain traffic that lack quality content).

“This update is designed to reduce rankings for low-quality sites—sites which are low-value add for users, copy content from other websites or sites that are just not very useful. At the same time, it will provide better rankings for high-quality sites—sites with original content and information such as research, in-depth reports, thoughtful analysis and so on,” stated the official Google release.

The major takeaway from this is that paid-for SEO (search engine optimization) is becoming less reliable, especially in the real estate field, and creating quality content is the most important thing with online marketing.

First-Time Buyers Fading

According to a recent report in the Wall Street Journal, the domination of cash-buyers and investors has been steadily increasing since July.

Capital Markets reported that “cash buyers and investors together have driven 70% of the increase in existing home sales seen since last July, while first-time buyers have been responsible for just 6%.”

This means that home prices are lower, and are expected to continue decreasing as demand for home weakens.

Locally, Santa Clara and San Mateo home sales are also dominated by cash-buyers and investors. As more homes are pushed to sale via foreclosures, demand will lower along with housing prices.

Credit Score Resources

Do you know your FICO credit score? If you are looking to purchase a home, be sure to look into your credit score well in advance.

 

Today’s market is competitive, with more cash buyers investing in property and multiple-offer transactions. Are you in the 700 range? 600 range? You will need some time to find out your score and work on improving it if need be. Check out the below sources to help you assess your credit situation.

Four Good Sources of Credit Information

Here are four websites worth visiting, if you want to learn more about your credit reports and scores:

1. www.myfico.com — This site is owned by the company that created the credit-scoring model used by most lenders. The education tab is especially useful. Take a look at the forum where you can post questions.
2. www.annualcreditreport.com — This website is jointly owned by the three credit-reporting companies (TransUnion, Equifax and Experian). This is where you should go to request your free reports. This is the only site that is regulated by the Federal Trade Commission.
3. www.ftc.gov/freereports — This website is useful to find out why a “free” credit report is offered, but then they try to “charge” you for additional things. This is a marketing practice in wide use and this website can tell you more about it.
4. www.bankrate.com — This site offers credit tips and it explains the mortgage process. You can compare rates, use a myriad of calculators and check out their “news and advise” tab for pertinent news information each week.

The four sites listed above will help you get started on your home buying adventure.

Cash Buyers Dominate San Mateo, Santa Clara County Home Sales

Over the past several months, cash buyers – often investors – looking for bargains have been purchasing homes in San Mateo and Santa Clara counties at a high rate, according to a San Jose Mercury article. This activity lowered the average sale price in San Mateo County, and kept it level with last year’s average in Santa Clara County.

The real estate information service DataQuick stated that the area home sales are dominated by distressed homes and these cash buyers, who made up about a quarter of home buyers in January in both counties.

“What’s most interesting is how active the investors were through the holidays and into early January,” said Andrew LePage of DataQuick in the Mercury story.

Buyers in the area are on the bargain hunt as well, with multiple-offer real estate transactions being common of late. Foreclosures have allowed some buyers to get in to the market, and the low prices fuel the competition fire.

It is hard to compete against a true cash buyer when bidding on a property. To stand out when making an offer, make sure you get your loan pre-approved properly, essentially turning yourself into a “cash buyer.”

Speed-Cleaning Your Kitchen

There are many shortcuts and extra efficient methods of keeping your kitchen spotless without spending too much time cleaning every day. This Real Simple magazine article recommends setting up three kitchen to-do lists: daily, weekly, and seasonally.

Daily chores include wiping down the sink, stovetop, counters, and sweep or vacuum the floor. They tally this up as taking 3 minutes and 30 seconds total.

Weekly, Real Simple recommends wiping down backsplashes, appliances, cabinets, garbage can, switchplates and phones. Also, one should mop weekly (about four minutes, the most time consuming of these quick tasks), and wash the dish rack. The weekly tasks add up to about 20 minutes.

Seasonal tasks include deep cleaning and scrubbing of the refrigerator, sink, and other appliances four times per year.

While cleaning isn’t everyone’s idea of fun, using these quick guidelines will decrease your cleaning time to minutes a day – the time it takes to brew your coffee.For motivation, Marla Cilley, author of Sink Reflections, recommended in the article to clean your sink first.

“A sparkling sink becomes your kitchen’s benchmark for hygiene and tidiness, inspiring you to load the dishwasher immediately and keep counters, refrigerator doors, and the stove top spick-and-span, too.”

This Week's Market Commentary

 

This week brings us the release of six economic reports to be concerned with in addition to some very important testimony from Fed Chairman Bernanke. Two of the reports are considered to be very important, but nearly all of the week’s releases have the potential to affect mortgage rates.

The week’s first data comes this morning with the release of January’s Personal Income ad Outlays data, which gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for an increase in income of 0.3% while spending is expected to rise 0.4.

Since consumer spending makes up two-thirds of the U.S. economy, the bond market does better when spending is slowing. Good news would be a smaller than expected increase, or better yet, a decline in spending.

The Institute for Supply Management (ISM) will release their manufacturing index for February late Tuesday morning. This index measures manufacturer sentiment and can have a pretty large impact on the financial and mortgage markets if it varies from forecasts. It is expected to show a decline from January’s 60.8 to 60.5 this month. This is important because a reading above 50.0 means more surveyed manufacturers felt business improved during the month than those who felt it had worsened, meaning likely growth in the manufacturing sector. If we see a weaker than expected reading, the bond market could rally.

Fed Chairman Bernanke will deliver the Fed’s semi-annual testimony on the status of the economy late Tuesday and Wednesday mornings. He will be speaking to the Senate Banking Committee Tuesday and the House Financial Services Committee Wednesday.

The Fed Beige Book is the next report scheduled for release and it will be posted Wednesday afternoon. This report details economic activity throughout the country by region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during afternoon trading Wednesday. It probably will not cause a major sell off in the stock or bond markets, but could cause enough movement in bond prices to possibly improve or worsen mortgage rates slightly if it reveals any significant surprises.

The biggest news of the week comes Friday morning when one of the single most important monthly reports we see will be posted. The Labor Department will release February’s Employment report at 8:30 AM ET Friday. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading.

The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a large drop in payrolls and little or no increase in earnings. Current forecasts are calling for 0.1% increase in the unemployment rate to 9.1% and approximately 180,000 jobs added during the month. Weaker than expected readings would be great news for the bond market and should lead to lower mortgage rates Friday.

January’s Factory Orders will be posted late Friday morning, which will give us another measurement of manufacturing sector strength. This data is similar to last week’s Durable Goods, except this report covers orders for both durable and non-durable goods. Current forecasts are calling for an increase in new orders of approximately 2.1%. A smaller than expected rise would be good news for the bond market and could lead to an improvement in mortgage rates.

Overall, look for a fairly active week for mortgage rates. Friday is undoubtedly the biggest day of the week, but Tuesday may also bring noticeable movement in mortgage rates.

This past week, mortgage rates have declined “as fears about the economic impacts of turmoil in the Middle East helped depress yields on long-term bonds, including those that fund most home loans,” according to Inman News and a survey by Freddie Mac.

The Wall Street Journal reported that the 30-year fixed-rate mortgage averaged 4.95%, down from last week’s 5% and 5.05% a year before.

Rates on 15-year fixed-rate mortgages were 4.22%, below last week’s 4.27% and the year-earlier average of 4.4%, as well.

After a spike in rates that hadn’t been so high since last April, this is promising for a downward trend in mortgage rates despite mixed overall economic reports.

Homeowners Turning To Home Improvement Projects

Homeowners across the country have started to spend more on home improvement projects despite a challenging housing market, according to a recent San Francisco Chronicle article.

This shows consumer confidence, which is a great sign for the mortgage market. Also, it shows that people are making further investments into their home.

Both Lowe’s and Home Depot have seen an increase in sales in the most recent quarter. Lowe’s said yesterday that their fourth-quarter profits increased by 39%.

While the spike in sales is not a complete economic recovery omen, “the positive results show home-improvement retailers are seeing signs of life from shoppers as they take on projects around the house that were delayed during the consumer spending slowdown and recession,” said the CEO of Lowe’s, Robert Niblock, in the Chronicle.

Read the full article here. Have you taken on any home improvement projects recently?

Prepare for an Earthquake: Making a Disaster Kit

In California, earthquakes can and will happen here quite often. If a big one strikes on this earthquake-prone area, it is important to be prepared and keep you and your family safe.

Creating a disaster kit for your home is not difficult and could make all the difference one day, as well as providing peace of mind. The California Emergency Management Agency (CalEMA) emphasizes that the first 72 hours after a major disaster are critical.

“Electricity, gas, water, and telephones may not be working. In addition, public safety services such as police and fire departments will be busy handling serious crises. You should be prepared to be self-sufficient – able to live without running water, electricity and/or gas, and telephones – for at least three days following a major emergency.”

In order to prepare for three days, create a Disaster Kit with supplies for three days and place it in a central location. Most importantly, make sure you have one gallon of water per person, per day. This is the amount of water needed for survival.

Other supplies, including food, essential medications, and a freshly stocked first aid kit are essential in a proper disaster kit. This state video runs through how to make one: Emergency Kit Video

Mortgage Delinquencies Declining

According to a recent Wall Street Journal article, there has been a decline in mortgage delinquencies as a result of an improving labor market.

The job market effects the mortgage market intensely, because, as the article points out, “people need a paycheck to pay their mortgage.”
 
During the fourth quarter, the number of people behind on mortgage payments fell to its lowest point in two years. 

An important takeaway from this article: “The figures provide the clearest indication yet that the mortgage crisis that began four years ago has stopped getting worse and is easing.”

Another thing to note is that the state of California is doing extremely well compared to others, with the state’s total foreclosure inventory in the fourth quarter below the national average for the first time since the mortgage crisis began.

An economist said that without a spike in unemployment, the mortgage delinquency rate should continue to decline; a great sign for economic recovery.