Mortgage rates edged lower last week, buoyed by a weak employment report for March.
After shedding 80,000 jobs last month, the number of working Americans is lower by 232,000 so far this year.
Many pundits are claiming these figures are proof of a U.S. economic recession but it's important to keep the data in perspective.
According to the government, there are 153 million people in the workforce.
The 232,000 terminated workers, therefore, represent a fractional 0.15 percent of the workforce. This is a very small percentage.
This week, there isn't much new data for markets to digest but we'll want to keep an eye on some important events.
The first is Monday's Consumer Credit report. As the Federal Reserve has lowered the Fed Funds Rate, Prime Rate has fallen, too, and that means that credit card interest rates are down.
The Consumer Credit report will show whether Americans are spending the country out of a recession. Ballooning national debt levels should cause mortgage rates to rise because more spending on the consumer level increases the likelihood of inflation later this year.
The second is Tuesday's release of the Federal Open Market Committee's March meeting minutes.
We know what the Fed said and did after its last meeting; the minutes, though, give us the "Behind the Scenes" look at the debate. There shouldn't be much in the minutes that we haven't already heard, but if there is, expect mortgage rates to swing wildly in response.
Other than that, there's not much doing this week. A few Federal Reserve speakers will be out and Friday we'll get to see the University of Michigan Consumer Sentiment survey.
The biggest threat to mortgage rates this week is ongoing news of financial stability (or instability) with large banks and investment houses.
Mortgage markets do not like it when banks go insolvent so be aware of that type of news if it surfaces because it can change the direction of mortgage rates in an instant.
News sources like to use the term "credit crunch" in describing the U.S. economy, but they rarely define what a credit crunch is and what it means for Americans.
A credit crunch is when the amount of available loans suddenly decreases over a very short period of time.
Usually, it follows a period of lending which, in hindsight, becomes known for its "easy money".
The start of a credit crunch often coincides with consumer loans starting to go bad and lenders losses starting to mount.
The realization that more losses are ahead forces lending institutions to tightening their respective lending guidelines.
Since the current credit crunch began in mid-2007, Americans looking for credit now face:
And now, the newest symptom of the credit crunch: the largest buyer of mortgage loans -- Fannie Mae -- has instituted a new, 580 minimum score requirement for all mortgage applicants.
As consumer delinquencies mount and the economy continues to sputter, getting access to credit will likely get tougher for every American -- good credit and bad.
And that's the defining characteristic of a credit crunch.
Source
Credit Crunch
Wikipedia, April 8, 2008
http://en.wikipedia.org/wiki/Credit_crunch
More commonly called "points", discount points are up-front fees charged by mortgage lenders in exchange for lower mortgage rates.
The cost of one point is one percent on the loan size and discount points appear on Line 802 of the HUD-1 Settlement Statement.
As a general guideline, each point paid lowers a mortgage lender's offered interest rate by 0.250%.
For example, a $200,000 home loan offered at 6.000% can be had for 5.750% if the borrower agrees to make an up-front payment of one point ($2,000).
In addition to lowering your interest rate, discount points are usually tax-deductible, too. Therefore, be sure to provide any settlement statements from the previous calendar year to your accountant during Tax Season.
Lastly, as an added note: discount points should not be confused with origination points, a one-time charge for the lender's service appearing on Line 801 of the HUD-1 Settlement Statement. Origination points are not tax-deductible.
John Topa, First Sunrise Mortgage, Northeast PA Mortgage Advisor. www.FirstSunriseMortgage.com
Mortgage rates were up last week on weak housing data and a growing nervousness about mortgage bond quality.
Rates would have been up more if not for a tame inflation reading Friday.
The Personal Consumption Expenditures report fell Friday to 2.0% year-over-year, putting it back within the Federal Reserve's comfort zone of 1-2 percent.
PCE is the Fed's preferred inflation gauge and with inflation in check, Ben Bernanke & Co. can focus on other elements of the economy such as housing and employment.
Mortgage rates figure to be volatile (again) this week.
The first major event to strike markets is today's release of a 200-page, government-written plan outlining sweeping reforms for the financial industry.
If markets interpret the government's plan to be bad for bond markets, expect mortgage rates to rise as demand for bonds falls. Conversely, if the reforms are expected to benefit bonds, mortgage rates should fall.
Then, Wednesday, Fed Chairman Ben Bernanke testifies to Congress about the U.S. economy.
Expect the Fed Chief to stay on message, but mortgage rates will respond to his word choice and tone -- especially in remarks about large banks and their ability to survive the current market. Traders are already on edge and will take Bernanke's testimony very seriously.
And lastly, also moving markets this week is the March jobs report, due Friday.
Remember that job growth was negative in January and February so with a third negative month in March, the calls of recession will grow louder; the expectation is the economy shed 40,000 jobs last month. Whether a negative number will be good or bad for mortgage rates, though, will depend on the bond traders' mood come Friday morning.
Either way, though, if the actual jobs number deviates from the expected jobs number of 40,000, mortgage rates will swing wildly starting at market open Friday and continuing into the weekend.
John Topa, First Sunrise Mortgage, Northeast PA Mortgage Advisor. www.FirstSunriseMortgage.com
When mortgage rates change rapidly, it's a fiscal challenge to shop for a home and/or home loan.
Lately, mortgage rates have been especially volatile, mirroring the wild moves of the stock market.
Here's how up-and-down stock markets have been in 2008: Through last week, the S&P 500 Index changed more than 1 percent per day on 28 separate days.
This represents 52 percent of all trading days and is the most volatile measurement since 1938.
Mortgage financing is impacted by stock market changes because when money flows into stocks, it tends to come from bond markets. And, when money leaves stocks, it tends to "gets parked" in bond markets.
Because mortgage bonds set mortgage rates, you can understand how stock market volatility can make it difficult to predict what home loan payments might look like.
Volatility is expected to continue for the next several quarters so if you see a mortgage rate you like today, consider locking it right away -- it probably won't last long.
Source
U.S. Stock Volatility Climbs to Highest in 70 Years, S&P Says
Jeff Kearns
Bloomberg, March 20, 2008
http://www.bloomberg.com/apps/news?pid=20601213&sid=av840GLwE4UA&refer=home
John Topa, First Sunrise Mortgage, Northeast PA Mortgage Advisor. www.FirstSunriseMortgage.com
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John Topa, Your Connection to Affordable FHA Mortgages. Serving PA since 1997. Contact me today to see how your clients can benefit from honest, informed mortgage advice. 570-344-6091.
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