Weekly Mortgage Markety Update Provided by Bob Joyce f Reliant Mortgage Co. 06/13/11

Bob Joyce
Loan Officer
Reliant Mortgage Company, LLC
Phone: (617) 365-9432
Fax: (978) 818-6635
License: NMLS ID# 196322

Last Week in Review: Ben Bernanke spoke, but did the markets listen? Find out what he said, and how home loan rates reacted.

Forecast for the Week: A full week of economic reports is ahead, with news on inflation, housing, manufacturing, and more.
View: Still wondering what to do for Father's Day, coming on Sunday June 19th? Check out the View article for some great ways to celebrate Dad.

They say "actions speak louder than words." But last week, words had a big impact on the market, especially those by Fed Chairman Ben Bernanke. What did he say, and what was the impact on home loan rates? Read on for details.
Last week, Bernanke essentially made some downbeat and economically depressing comments, saying that "the economy is still producing at levels well below its potential." Remember that weak or negative economic news and comments normally hurt Stocks and helps Bonds, as investors will move money from Stocks to what they see as safer investments like Bonds (including Mortgage Backed Securities, upon which home loan rates are based). And that's part of what we saw happen last week: Bonds and home loan rates improved on these negative economic comments, while

Stocks weakened.
But that's not all Bernanke said last week. He also spoke about inflation, saying, "FOMC participants currently see the recent increase in inflation as transitory and expect inflation to remain subdued in the medium term." Why is this significant? Inflation is the arch enemy of Bonds and home loan rates, because it erodes the value of the fixed return provided by a Bond, which causes home loan rates to rise. This means that Bonds, and therefore home loan rates, typically worsen at the first sign of inflation. But Bernanke playing the role of inflation dove last week (an inflation "dove" believes inflation will have a minimal impact on the economy, the opposite of an inflation "hawk") also helped Bonds and home loan rates improve.

So what does this mean for the markets and home loan rates in the short- and long-term? Here's a visual that will help explain things. Imagine a child playing with a yo-yo riding on an escalator. If Bond prices are the yo-yo, you can see how they would be moving up and down like the action of the yo-yo in the short term. And this is what we are seeing right now: Bond prices and home loan rates are moving day to day in somewhat volatile fashion but continue to move in an improving trend. But just like the child will reach the end of the escalator, Bonds and home loan rates will eventually reach the end of their improving trend... and when they do they will likely worsen quickly, as history attests.
he bottom line is that home loan rates still remain near some of the best levels we've seen this year, and it's important to take advantage of these levels while they remain. If you have been thinking about purchasing or refinancing a home, call or email me to learn more about why now is a great time to benefit from today's historically low rates. Or forward this newsletter on to someone you know who may benefit.


Forecast for the Week  

After last week's quiet economic report calendar, this week's calendar is jam-packed. Look for:
  • Tuesday's Retail Sales Report: If sales turn out to be weak, this will add evidence to the belief that our economy is slowing down. And though we want the economy to improve, a weak report could help Bonds and home loan rates.
  • A double dose of inflation news with Tuesday's Producer Price Index, which measures inflation at the wholesale level, and Wednesday's Consumer Price Index. Will these reports coincide with Bernanke's remarks on inflation from last week?
  • Job news with Thursday's weekly Initial and Continuing Jobless Claims Report. Last week's Initial Claims came in at 427,000, showing that the job market still has some work to do to get below and stay below - the psychologically significant 400,000 mark once again.
  • Thursday also brings housing news, with reports on both Housing Starts and Building Permits, and manufacturing news with the Philadelphia Fed Index, which is considered an important indicator of the manufacturing industry.
  • Rounding out the week is Friday's Consumer Sentiment Index. This index is important because the level of consumer sentiment is directly related to the strength of consumer spending, which accounts for two-thirds of the economy.
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 home loan rates continue to improve, though as discussed above, volatility remains rampant. Give me a call or send me an email if you have any questions at all about your personal situation.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Jun 10, 2011)
Japanese Candlestick Chart

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