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My Economic Forecast for the 4th Quarter - Pain

Fri, 10 Oct 2008 17:41:08 UTC

2008-10-10T17:50:30Z

Aggressive synchronized rate cuts will bring confidence back to the markets, but only if, the government is able to address the underlying concerns emanating from the housing market.

Aggressive synchronized rate cuts will bring confidence back to the markets, but only if, the government is able to address the underlying concerns emanating from the housing market.

Price stability is the primary driving force in our current market turmoil. The price of goods, investments and homes are all in question. When the price is in question, so is the value. In this environment, investors are sitting on the sidelines waiting for a more conducive environment for long term investments. Speculators rule the day. Their short term play only exacerbates the volatility of the market.

What factors are contributing to price instability and how are these issues being solved:
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* US Weakness: The old adage "when the U.S. sneezes the rest of the world catches a cold" has been called into question. Up until a week ago, it seemed as though the US may have fallen from it's economic prowess as the world price setter. I believe the US has fallen from dominance, but not as much as the rest of the world would like to think. Central Banks around the world are way behind the curve on this financial crisis. They're now following our lead. With their economic woes, our currency should strengthen and inflation should subside as commodity prices are priced in U.S. dollars.
* Market Participation: Investors confidence is knee high to a grasshopper. This needs to change in order to stabilize the stock market. The Fed is attempting to buy confidence by lower the Overnight Lending Rate, extending capital to the system, bailing out companies, standing behind banks and empowering the treasury to invest in any type of security.
* Housing Prices: This crisis may very well begin and end with home price deterioration. Unfortunately, this is the one area where I don't believe there is any plan currently in place to fix the problem.

In the next quarter, I see stocks and bonds continuing to sell off as countries around the world move to desperate measures. Aggressive synchronized rate cuts will bring confidence back to the markets, but only if, the government is able to address the underlying concerns emanating from the housing market. It will be an ugly quarter as we back into 2009 and better times. Credit will remain tight through the 4th Quarter and mortgage rates should be range bound between 6.000 & 6.500%.




My Economic Forecast for the 2nd Quarter - Volitility Exuberance about a Standard Mean

Wed, 02 Apr 2008 21:08:30 UTC

2008-04-02T21:16:19Z

This volatility has caused lenders to reevaluate their pricing inter-day sometimes offering as many as three rate sheets in any given day. While that sounds like volatility exuberance, it is actually the fine tuning of rates for individual loan types. The biggest impact to the consumer is compounding market volatility with pricing adjusters. Lenders are searching for new ways to...

This volatility has caused lenders to reevaluate their pricing inter-day sometimes offering as many as three rate sheets in any given day. While that sounds like volatility exuberance, it is actually the fine tuning of rates for individual loan types. The biggest impact to the consumer is compounding market volatility with pricing adjusters. Lenders are searching for new ways to price risk.

While the day to day volatility of the markets has been unprecedented, interest rates have fluctuated in less dramatic fashion around 6.000%. My forecast last quarter was for a 3/8th percent increase from 5.63%. As it turned out, that was a very accurate prediction. The rate on a FNMA 30 Yr rate today averages 5.80% nationally.

In a normal market, mortgage professionals have come to expect 3-22 basis points fluctuation in the FNMA Bond. The norm over the past three months has been 30-80 basis points. This volatility has caused lenders to reevaluate their pricing inter-day sometimes offering as many as three rate sheets in any given day. While that sounds like volatility exuberance, it is actually the fine tuning of rates for individual loan types. Remember that when lenders issue pricing, they are doing so for their entire loan offering. It may be that market movements call for Non-Conforming or Libor loans to go up while the rest of the portfolio remains constant. That isn't to say that rates aren't going up. However, my perspective is that we dwell on the markets too much. The worst day that I can remember over the course of the last three months was an inter-day reprice 1/4 higher on a Conventional 30 Yr Fixed.

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The biggest impact to the consumer is compounding market volatility with pricing adjusters. Lenders are searching for new ways to price risk. They're adding premiums to loans that carry high loan to values and low credit scores. This is being done on a scale. For example a customer with a 620 credit score may have a rate that is 1% higher than that of a 780 score after applying the appropriate adjuster. This is a means to an end. Investors need to feel that risk is being appropriately assessed and without investors banks lack the liquidity to turn transactions into new loans.

My forecast for the 2nd quarter of 2008 is for an increase to rates of 1/8th percent. Rates should oscillate around 6% as the economy holds their breath in anticipation of the NBER pronouncement making the consumer felt recession official. This quarter will provide substantial evidence as to the true strength of the economy. As was true last quarter, keep your ear attuned to inflation. Should inflationary concerns steal the media lime light, rates will move dramatically higher.




My Economic Forecast for the 1st Quarter - To Yield or not to Yield

Sun, 13 Jan 2008 04:45:18 UTC

2008-01-13T05:03:44Z

In the past few weeks, the media has gone from talking about recession as a small possibility to one of certainty and great depth. I believe investors are following historical trends here in that they are overreacting to this news. Right now, they are winning the battle to determine rate direction. However, the technicals can't allow much more improvement.

In the past few weeks, the media has gone from talking about recession as a small possibility to one of certainty and great depth. I believe investors are following historical trends here in that they are overreacting to this news. Right now, they are winning the battle to determine rate direction. However, the technicals can't allow much more improvement.

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Right now rates are acting against their historical tendencies. On average rates tend to have an inverse relationship with stocks, rates tend to increase with heightened inflation and rates tend to fall in the face of catastrophic geopolitical events. While counter intuitive performance would tend to negate forecasting, there are known differences between the economy of today and that of our historical data. The world is a much smaller place today. Foreign investors have helped to mitigate many of the peeks and troughs of past markets. With their commerce, currency fluctuations play a bigger role than in years past as well the economic prospectus of countries around the globe. In the 1st quarter of '08, many of these forces will offset and cause conflicting projections of rates to come.

It appears that the US economic downturn is spreading to the rest of the world at the same pace by which the housing market crash spread through our economy. Economies around the world are holding their Central Bank Rate steady while our Fed is cutting harshly. This will cause the US dollar to weaken fearfully in upcoming months. Such dollar weakness may cause major foreign investors to pull money out of US Securities. If that occurs, rates could change drastically in a very short period of time. While these macroeconomic forces try to push rates up, microeconomic forces will be trying to push rates down as domestic investors move toward safer investments.

This flight to quality is a reaction to a looming recession. In the past few weeks, the media has gone from talking about recession as a small possibility to one of certainty and great depth. I believe investors are following historical trends here in that they are overreacting to this news. Right now, they are winning the battle to determine rate direction. However, the technicals can't allow much more improvement.

Already rates are trading at better levels than they have in 2 years. They are up against tough technical resistance. Not only do they have historical bests to fight against, but they have also strayed far away from the moving average and are now suspect to the leash affect. That compounded with being overbought as per stochastics predicts a reversal. I believe this reversal is a not just probable, but definite considering the yield of these notes. Currently treasuries are offering less than 4%. When looking at this from a currency perspective, there is almost no gain on the investment. It's just not sustainable.

I believe rates will go up slowly over this quarter and may move erratically if dollar weakness forces Asia to pull their investments. I'm calling for 3/8 ths of an increase.




My Economic Forecast for December - My return to forecasting

Fri, 07 Dec 2007 14:40:51 UTC

2008-01-13T05:03:44Z

We are living the very turbulence that future generations will one day read about. Supermodel Gisele Bundchen's assessment of currency trade will be recorded along with the thoughts and opinions current day geniuses such as Warren Buffet and Allen Greenspan.

We are living the very turbulence that future generations will one day read about. Supermodel Gisele Bundchen's assessment of currency trade will be recorded along with the thoughts and opinions current day geniuses such as Warren Buffet and Allen Greenspan.

Four rocky and unpredictable months have passed since my last forecast. In that time the credit markets collapsed, the mortgage industry became taboo, gas prices put the squeeze on the consumer, the US economy threatened recession and world renowned beauty snubs the dollar.

We are living the very turbulence that future generations will one day read about. Supermodel Gisele Bundchen's assessment of currency trade will be recorded along with the thoughts and opinions current day geniuses such as Warren Buffet and Allen Greenspan.

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Supermodel Gisele Bundchen solidified the post Iraq War era of dollar weakness when she demands Procter & Gamble pay her in euros for her representation of Pantene hair products.

Currently the US is leading the world out of an unsustainable growth period. Our Federal Reserve has begun a series of interest rate cuts to help bolster an economy that is teetering on recession. In short time Central Banks around the world will begin to follow suite. While this takes place the pain of an economic slowdown will be exaggerated by several market corrections. Both the credit and housing markets need to stabilize and the US dollar needs to regain its footing. The hidden hand of the market should bring the credit and housing markets back into equilibrium and the US dollar should rebound with the promise of new political leadership and the easing of monetary policy around the world. In the mean time, inflation in the form of currency weakness will dance around our comfort zone.

Inflation, the enemy of mortgage rates and bonds, compounds the Federal Reserve's will to help the markets. Additional interest rate cuts will come at the cost of rising inflation. In addition to the inflation caused by rising yields, wage, currency and commodity price inflation will cast a delicate balance for the Fed.

Over the next month I expect rates to go up by an 1/4% after the jobs report on Friday the 7th. Then I expect rates to improve by an 1/8th% over the remainder of the month.




My Economic Forecast for August - A warrented yet un-warrented improvement

Mon, 30 Jul 2007 03:31:38 UTC

2007-07-30T03:52:32Z

In addition to competing for global investment dollars our bonds face some lingering inflationary fears. Commodity prices such as oil and and coper have been on the rise. It's feared that eventually companies will pass the increase in their raw materials on to the consumer. Similarly, companies may also pass on the cost of increased wages and diminishing worker productivity. In addition to competing for global investment dollars our bonds face some lingering inflationary fears. Commodity prices such as oil and and coper have been on the rise. It's feared that eventually companies will pass the increase in their raw materials on to the consumer. Similarly, companies may also pass on the cost of increased wages and diminishing worker productivity. Economists and traders are back to betting on a rate cut by the Federal Reserve. "Federal fund futures prices on the Chicago Board of Trade suggest traders see a 100 percent chance the Fed will trim its target rate a quarter-point to 5 percent at its December meeting, up from 44 percent odds two days ago (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ak1Wm7swioLM)." While I don't have a documentable figure to portray the number of economists that agree with the statement above, I do believe that I heard Bloomberg radio quote 75% of economists surveyed. Unfortunately, I'm not on Bloomberg's call list. At least, not yet. I don't believe the Fed will be cutting rates any time soon. Consider the Federal Reserve's Mission Statement. The Federal Reserve's duties fall into four general areas: - conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates -supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers maintaining the stability of the financial system and containing systemic risk that may arise in financial markets -providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system It is consistently the mistake of investors to believe that the Federal Reserve is commissioned to stimulate the markets and economic growth. The Federal Reserve and in particular Ben Bernanke's Federal Reserve has been hawkish on inflation. They have given Congress, the American people and the world a layer of transparency in their pledge to data dependency. While I do believe that the market is currently short on Mortgage Bonds, I don't believe that inflationary fears have subsided to the extent that the Federal Reserve can turn it's concentration toward economic growth and the fight against stagflation. Global investment plays such a big role in our markets today that I will continue to look at things through a macro-economists eye. The markets of the G7 nations are in fierce competition. Currency trading, the relative yield on government debt and commodity prices are the three relationships I'm watching right now. The dollar's has improved against the other major currencies around the world. This will keep investors money in US markets so long as the yields remain where they are. Unfortunately, the fiscal policy of the world tends to follow our lead. It looks like the other nations around the globe will continue tightening their government lending rate. The effect of this will largely depend on the performance of the dollar. In addition to competing for global investment dollars our bonds face some lingering inflationary fears. Commodity prices such as oil and and coper have been on the rise. It's feared that eventually companies will pass the increase in their raw materials on to the consu[...]



My Economic Forecast for July - Show some spirit!

Tue, 10 Jul 2007 22:35:54 UTC

2007-07-10T22:39:12Z

The Fourth of July has come and gone but that's no reason to pack away the fireworks.

The Fourth of July has come and gone but that's no reason to pack away the fireworks.

Light one up for rates ceasing their climb. Light another one up for getting through a volatile holiday trading week. Now, light up whatever you have left if you want to see rates improve by 1/8 - 1/4% in the remaining weeks of July.

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As rates are derived from their relationship to the Mortgage Bond, my forecasting for rates is often a reflection of what's happening in the bond market. Remember, when the Mortgage Bond improves, rates go down. At least, that's what supposed to happen. What we've been seeing over the past two weeks is that rates have been hesitant to improve along with the bond because of new expectations that have been forged by investors in the post sub-prime fall out banking world. The media is hanging on to the news on sub-prime delinquencies and foreclosures with more tenacity than it did with the coverage of Katrina or Y2K. As a result, investors now want to see higher returns on their investment when investing in Mortgage Backed Securities.

Despite having about an 1/8th additional risk premium attached to current rates, they have stabilized and have been trying to go lower. The bond has tested upper levels of support and been pushed back. At least, that was up until today. Today Bonds made a decisive move above the converging 10 & 25 day moving averages. If they can hold their position above these support lines, then we can expect to see the bond improve and rates will follow.

What should you be doing: I believe we've become accustomed to the recent exaggerated swings of the market. Even-though the trading range has been fairly tight, we're seeing swings that ordinarily would correct themselves but are being slow to do so in this Bear Market. I suggest keeping your finger on the trigger and being ready to lock at any time.

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The Fed has done their job. Now's when it starts to hurt.

Sat, 30 Jun 2007 18:27:15 UTC

2007-06-30T18:43:02Z

When good news is shrugged off and bad news is exaggerated, it shows that the Fed has done it's job. The Fed has beaten down the bulls and caused investors and the media to crawl into a cave and hibernate. Honey and berries won't wake this bear until the ice begins to thaw.

When good news is shrugged off and bad news is exaggerated, it shows that the Fed has done it's job. The Fed has beaten down the bulls and caused investors and the media to crawl into a cave and hibernate. Honey and berries won't wake this bear until the ice begins to thaw.

Many economists and investors have been praying and hoping that the Fed cut rates. This would bolster investments and securities while also easing the pressure on the consumer. This sounds like a prudent move; however, it's not the Fed's job. Remember, the Fed's sole purpose is to keep inflation in check.

Typically the Fed ends rate tightening only after it's affects have been hard felt. It has to really hurt. We haven't seen that in this economy. The consumer is still going strong. We're speeding up the economy with our pocket books. The Fed will remain hawkish on inflation as long as we're out shopping.

(image) Consumer sentiment is beginning to change. We're seeing it in reports that measure consumer confidence. As well as in the way that the media and investors are reacting to the news. This week was filled with economic reports and news that would typically be very bond friendly. Of all the reports coming out, I was most interested in the Friday morning coverage of the Core PCI numbers. Core PCI, the Fed's favorite measure of inflation, came in at 1.9% which is within the Fed's target range of between 1 & 2%. This is the first time in two years that we've seen these numbers in the Fed's comfort zone. It's great news! At least, you would think. I was watching the coverage on Bloomberg when the report came out. Only one of the six reports covering the story were upbeat about the news. I felt like that one reporter. We were beaming inside with optimism while at the same time being beaten down by a whole bunch of party poopers.

This is what is referred to as a bearish. When good news is shrugged off and bad news is exaggerated, it shows that the Fed has done it's job. The Fed has beaten down the bulls and caused investors and the media to crawl into a cave and hibernate. Honey and berries won't wake this bear until the ice begins to thaw.

What does that mean to you? I believe rates will be fairly flat for the next several weeks. Mortgage Bonds have regained their footing on the news from this past week. The bond has broken a tough ceiling and will enjoy the reversal in that when a ceiling is broken it becomes a new floor. If bonds can stay above the current level of support over the next day or two, we should be able to determine the trading range to follow. Stay tuned for that trading range. Anyone who is settling in the next 60 days should be in close contact with me. Next week will be a little volatile as investors will see light trading volume on account of the 4th of July holiday.

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Interest Rates & the 7th Inning Stretch

Mon, 18 Jun 2007 23:02:34 UTC

2007-06-18T23:21:12Z

...And that's about how you'd write this one up if you were a sports writer covering the recent pummeling of interest rates. Thankfully, if this were akin to a baseball game, I'd say we're down 10-0 in the 7th. It's time to get the bats going and save some face.

...And that's about how you'd write this one up if you were a sports writer covering the recent pummeling of interest rates. Thankfully, if this were akin to a baseball game, I'd say we're down 10-0 in the 7th. It's time to get the bats going and save some face.

(image) It's been a brutal game. The Mortgage Bonds have been outhit by nearly every player. Wallstreet's been big early on hitting for record averages. JuanInternational came out of no where in the 3rd inning. He hit the cycle with England, New Zealand, and Switzerland in scoring position. Then China and Japan each hit broken bat homeruns. Amazing!

...And that's about how you'd write this one up if you were a sports writer covering the recent pummeling of interest rates. Thankfully, if this were akin to a baseball game, I'd say we're down 10-0 in the 7th. It's time to get the bats going and save some face.

Take a look at the scoreboard now and compare it to my last article.

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Two weeks ago Mortgage Bonds were in a spiral. There was a strong downward trend that crashed through every level of support that was in it's path. Now bonds have regained their footing and should recover some ground. I believe bonds should recover the losses levied by speculation in Asia. This speculation is notable by the jumps observed just below R1 in the Candlestick Chart above. Due to the time difference between our markets, bonds opened the trading day lower on news out of Japan on June 7th. The same occurred on June 11th due to speculation that China might raise their benchmark rate.

The red lines R1 & R2 represent upper end resistance levels. The green lines S1 & S2 represent lower end resistance levels. I believe the bond will trade horizontally between these two levels for some time. This level of trading represents the expectation that the next move by the Fed will be a rate hike. I believe it will be 6 months until traders take this bet off the table. The area of the graph that seems unrecoverable (this is the area between 101.22 and R2) is in large part representative of traders betting on one or two rate cuts. I have and will maintain my neutral bias and my belief that globalization has blured the lines in fiscal policy that connect inflation, economic growth and the overnight lending rate.

For new-construction and existing buyers, my suggestion here is to catch the mortgage bond as it approaches R1. This is between an 1/8th and 1/4% improvement from current prices.




My Economic Forecast for June - The Sky is Falling

Thu, 07 Jun 2007 14:20:52 UTC

2007-06-07T14:44:19Z

At this point, the floor has fallen out from under us. The market has now gone way beyond taking a rate cut off the table and has bet that the Fed will increase rates.

At this point, the floor has fallen out from under us. The market has now gone way beyond taking a rate cut off the table and has bet that the Fed will increase rates.

With every forecast, I begin with a review of last month. In May I tutted my own horn for having been spot on in my projections to date. My May forecast called for steady rates through the end of May with the possibility of geopolitical news increasing rates from 3/8ths to 1/2%. While I was right about the rate increase, my timing and reasoning was off. Rates went up dramatically in the closing weeks of May.

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Foreign investment has been fleeing the US Market. This is primarily because of the weakness of the dollar and the global fight against inflation. Economic expansion and inflation go hand in hand. As the global leader in commerce, the US was the first country to fear rampant inflation. Our Federal Reserve raised the overnight lending rate to 5.25% as a measure to keep inflation within the Fed's comfort zone of 2%. As mentioned last month, the Bank of England has followed suit and now has a lending rate of 5.5%. When the cost of borrowing goes up so does the pay out to investors. Given the higher return on English treasuries and the strength of the pound, there is good reason for foreign investors to consider taking their money elsewhere.

Enough investors have left to push the mortgage bond below the 200 day moving average. This is a critical level of support. When the bond is above the 200 day moving average, it acts as a strong floor. When below it is a nearly impenetrable ceiling. The last time the bond crossed the 200 day moving average it took nearly a year and a half to recover. There has been very little economic news of late to help bonds break out of their negative trend. The bond friendly news that has come out has taken a back seat to a soaring stock market. At this point, the floor has fallen out from under us. The market has now gone way beyond taking a rate cut off the table and has bet that the Fed will increase rates. "Traders see an 18 percent chance the Fed will lower its benchmark rate to 5 percent by year-end, compared with odds of 40 percent last week and 98 percent a month ago, according to Fed funds futures (http://www.bloomberg.com/apps/news?pid=20601103&sid=a.0T8.G_bbgQ&refer=news)."

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Forecast: I believe the market has over reacted as is typically the case. Unfortunately, there's nothing to stop this fall at the current moment. It won't be until mid June that there is any economic reporting that could be bond friendly. If you are settling within the next 60 - 90 days, you should probably cut your losses and lock-in. Anyone who is settling past this point should be considering locking-in with a free float down.




Should I Stay or Should I Go Now? An answer for on the fence buyers.

Thu, 17 May 2007 00:37:33 UTC

2008-01-13T05:03:44Z

"If buyer's are buying-up, now's the time to do it," Gary Forro.

It's not the time for everyone to buy. But this situation is ideal for a specific type of buyer

(image) As rates are showing no signs of improving in the near term and the housing market continues to slump, I think of those on the fence borrowers. If you didn't have to make a move now but want to, what would you do?

To answer this question I asked Gary Forro of Remax Realty Professionals a few questions. What would a Real Estate Professional say if asked what they think of this market?

I was surprised that Gary's initial response wasn't about the real estate. Gary's initial reaction was about rates. Gary and I often talk about the market and generally share the same forecasting views. We both feel that rates will tend 1/4 to 1/2% higher over the next year and will not be any lower than they are now in the near future. Why is this our first response, you ask. It's because there is a lot of bad news looming in the market (oil instability, gas prices, hurricanes, geopolitical unrest, the housing slump, sub prime woes....)

It's not the time for everyone to buy. But this situation is ideal for a specific type of buyer. If you're looking to buy a house over $200,000 in the Central PA market, then this is your time. Houses that are fairly priced below $160,000 are selling in less than two weeks and often with multiple offers. These buyers may capitalize on still relatively low rates, but will most likely not reap the full benefit of the buyer's market that we're in. Homes fairly priced over $200,000 are staying on the market between 30 and 60 days. These homes are not seeing as many offers and may be more open for negotiations.

"If buyer's are buying-up, now's the time to do it," Gary Forro.

Many of the homes on the market right now have had price cuts. I remember listening to Daniel Kennedy (one of the top Listing Agents in the country) at a Real Estate convention a year back. She believes that pricing is one of the areas where realtors really earn their keep. When a seller cuts the price of their listing, it's largely transparent to the real estate community. There are so many new home listings coming on the market every day that most real estate agents only look at new listings. Many will never know that Jane Smith's dream house originally priced at $250,000 was cut to $200,000 and is now in Jane's price range. I asked Gary how a buyer can take advantage of price cuts knowing that it won't show up on the "hot-list." Gary told me that there is technology available to real estate agents that will continually search for properties within a set price range regardless of the properties initial listing price. The problem is that only about 20% of real estates agents utilize the software. This is where the 80/20 rule will guide you to the realtor that you should be doing business with. 20% of realtors do 80% of the business. There's a reason for that.
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My Economic Forecast for May

Fri, 11 May 2007 21:12:21 UTC

2007-05-11T21:57:30Z

Gas in the form of commodity price inflation is now our biggest fear. Remember that the Fed's job is to combat inflation. There is evidence now to argue both economic slowdown and inflation biases. However, the talk of economic slowdown affecting long term rates is premature. Inflation and presure from foreign investments such as the now 5.5% lending rate... Gas in the form of commodity price inflation is now our biggest fear. Remember that the Fed's job is to combat inflation. There is evidence now to argue both economic slowdown and inflation biases. However, the talk of economic slowdown affecting long term rates is premature. Inflation and presure from foreign investments such as the now 5.5% lending rate posted by the Bank of England will push rates higher over the next several months. I've been forecasting rates on my various blogs since February. Let's take a look back and see how I've done. *In February I was "nearly spot on." *In March my forecasts have me "bound for glory." *In April I waived a pastel yellow caution flag over Easter weekend calling for a major sell of in the Mortgage Bond followed by a two week recovery and that's exactly what happened. The bond sold off 29 basis points on Good Friday and recovered over the next 10 tradinig days, making up all the ground that was lost. As for my monthly forecast in April, I called for a flat month where rates will stay between 6.125% and 6.250% as a national average. I was right on. As the seasons change, so does my focus. I'm afraid that there is a storm brewing. June 1st is the start of hurricane season, but mother nature won't conform to the Farmer's Almanac or any other quaint convention. Andrea was named the first tropical storm of 2007 this past Wednesday. 12-17 more storms are expected to be named this season when the average is 9.6 named storms. In 2005 when Katrina among other storms decimated the gulf, there were 18 storms. Last year there were 10. The chief forecaster for AccuWeather, Joe Bastardi, predicts that 6 or 7 storms will hit the coast this year and more than likely they will make their epicenter in the Texas Gulf. The Gulf Coast! Gas prices are already over $3 a gallon across the nation. What would $4 a gallon do to the economy? The Gulf Coast is the heart of our nations Oil Refining Capacity. "Since early February refineries in Texas, Louisiana, California, Delaware, Ontario, Pennsylvania and Colorado have trimmed fuel output because of fires and interrupted power supplies," says Mark Shenk of Bloomsburg (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aMZI78m18obU). Add weather related disruptions to the mix and $4 a gallon is definitely possible if not likely. Forecast: Gas in the form of commodity price inflation is now our biggest fear. Remember that the Fed's job is to combat inflation. There is evidence now to argue both economic slowdown and inflation biases. However, the talk of economic slowdown affecting long term rates is premature. Inflation and presure from foreign investments such as the now 5.5% lending rate posted by the Bank of England will push rates higher over the next several months. I predict that rates will stay where they are through the month of May. However, in the months to come, I believe it will take only one significant event such as a hurricane or geopolitical news to push rates up by 3/8ths to 1/2%. [...]



Involuntary Unemployment Insurance for FREE on PHFA Loans!!!

Fri, 20 Apr 2007 18:45:38 UTC

2007-05-11T23:27:48Z

Great News! In PHFA's 2nd Quarter Update, they've announced that they have procured Involuntary Unemployment Insurance for FREE for up to three years!

Great News! In PHFA's 2nd Quarter Update, they've announced that they have procured Involuntary Unemployment Insurance for FREE for up to three years!


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Great News! In PHFA's 2nd Quarter Update, they've announced that they have procured Involuntary Unemployment Insurance for FREE for up to three years on loans requiring Mortgage Insurance (PMI). Departed Borrowers wishing to utilize this benefit should know the following:

Borrower must have been employed at a full-time job and working for at least 30 hours per week for at least four consecutive months prior to experiencing an involuntary unemployment event.
Involuntary Unemployment Insurance will pay all, or a portion of the borrower's required monthly mortgage payments (including principle, interest, taxes and insurance) up to $2,000 per month for up to four months of continuous unemployment.
The borrower is covered from the 12th month following loan closing to the 36th month following loan closing.*
There is a 30 day waiting period after an involuntary unemployment event for coverage to take affect.
*While this doesn't seem like a long time, it is a critical time frame. The preponderance of mortgages that go into default, do so in the first 3 years of repayment. Read "Pennsylvania Ranks 15th in Foreclosures. Should you be scared?" for more information on this topic.

PHFA is primarily a lender to First Time Home-buyers and the disabled. Their guidelines and a great deal of other great resources are available publicly at their website www.phfa.org. The information for this post came from the PHFA's 2nd Quarter update and PMI's WorkGap Program offered in conjunction with PHFA Financing.




Rates going into Easter Weekend

Thu, 05 Apr 2007 19:20:55 UTC

2007-05-11T23:36:02Z

Holidays typically bring hightened volatility to the Mortgage Bond market. My suggestion is to lock if within 60 days of closing and float if closing in or after June.

Holidays typically bring hightened volatility to the Mortgage Bond market. My suggestion is to lock if within 60 days of closing and float if closing in or after June.


Holidays typically bring hightened volatility to the Mortgage Bond market. This happens for a couple of reasons. The primary reason is the short trading day. The markets are only open from 8:30 - 10:30 tomorrow morning. This gives traders only 2 hours to make their play. While many stock brokers will be dressed in pink bunny suits at home with their families, there will be many self-proclaimed tycoons reacting to the exagerations of a condensed trading day.

The current outlook for rates is a bias toward improving rates with a breakaway run above current support levels as supported by the overbough position of the bond. Unfortunately, in practice, I've found that eventhough the technicals look favorable, bad news tends to dictate. There are 4 major reports that come out at 9:30 tomorrow. I believe the market will only conform to the technicals if the news is overwhelming to the upside. Any news to the downside will most likely result in a less pronounced increase in rates that will most likely be corrected over the course of the next two trading weeks.

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My suggestion is to lock if within 60 days of closing and float if closing in or after June.




My Economic Forecast for April

Thu, 05 Apr 2007 15:37:05 UTC

2007-05-11T23:35:33Z

I'm calling for a flat month as investors sit back and weigh the balances. Rates should stay between 6.125 & 6.250% throughout the month of April.

I'm calling for a flat month as investors sit back and weigh the balances. Rates should stay between 6.125 & 6.250% throughout the month of April.


My disclosure in Soft Landing, Bust or Myth? has me bound for glory. My forecasts thus far have been nearly spot-on month after month. Rates in March tended up toward 6.25% as forecasted in My Economic Forecast for March.

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Forecast: I believe we're in a transition period now where investors are being reminded of the Federal Reserve's job. The nature of the fight against inflation is that the Fed by default must have a bias toward inflation. What that means to you is that they will remain hawkish on inflation until the balances show a significant slow down in the economy. I believe we're starting to see that now. Corporate spending hasn't picked up as has long been expected. This coupled with the woes of the housing market and an inflationary tax on the consumer has slowed corporate profits. I'm calling for a flat month as investors sit back and weigh the balances. Rates should stay between 6.125 & 6.250% throughout the month of April.

For my various other forecasts and information that may be pertinent to buyers, please visit the respective hyperlink.