The world’s troubles sent investors scrambling for a place to hide this week, with stock markets having a few rough days. Among the most favorite places to stash cash are highly-liquid US Treasuries, and investor demand for them has driven the yield on the benchmark 10-year Treasury down by more than a quarter-percentage point over the last week or so.
The massive earthquake in Japan, followed by an indescribably destructive Tsunami which in turn triggered perhaps an unprecedented nuclear crisis may have far-reaching political and economic effects. In the middle east, political unrest is creating near civil war in Libya, and rising oil prices threaten to slow an already tepid domestic recovery.
All these troubles and others are to the benefit of US mortgage shoppers, who would be well-advised to take advantage of rates which are approaching 2011 lows.
The Federal Reserve Open Market Committee met this week, and no change to policy came and none was expected. In the statement which accompanied the close of the meeting, the Fed did note at least some concern about price pressures or at least acknowledged them. “The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation” noted the Fed. The did say that they expect these effects to be “transitory” but the trends in inflation all seem to be pointing upward at the moment, even if the actual levels are still fairly low.
Prices of imported goods rose by a stout 1.4% in February; excluding rising petroleum prices left a 0.6% gain. The increase isn’t particularly troublesome by itself, except that it was the fifth straight month of better than 1% increase in the cost of goods coming onto our shores. At the same time, we are exporting some cost increases to the rest of the world, too, as goods destined for exports rose by 1.2% during the month. A world still awash in monetary liquidity — with more added this week by the Bank of Japan — does seem to set the stage for price increases.
That was reflected in the Producer Price Index for February. The 1.6% increase was better than double forecasts, driven higher by food and energy increases again. Excluding them, the core rate of inflation rose by just 0.2%, but increases of 5.8% in the headline figure and 1.9% in the core measure are both on an upward path at the moment.
Much the same could be said about costs at the consumer level. The Consumer Price Index rose by 0.5% in February, a little more than was expected, with the core rate coming at a milder 0.2% rise for the month. Over the past year, consumer prices have increased now by 2.2%, and just half that much when food and energy are excluded from the mix. Although still low, the trend over the past year has moved from declining to flat to increasing, with more pronounced increases coming in the most recent period.
Inflation matters to mortgage shoppers because it pushes interest rates higher. Holding a long-term fixed-rate investment — like a bond or a mortgage loan — exposes an investor to the potential for loss, since the value of the investment is eroded over time by inflation. If you invested your money expecting a real (after inflation) return of perhaps 2%, and if you expect inflation to run at a 2% rate, your actual return would be zero. You would ask for a higher yield at the outset… and that higher yield would be someone else’s mortgage rate (or possibly even yours). Managing actual inflation and inflation expectations are among the Fed’s charges, and timely policy changes can make certain neither get out of hand. At some point, probably not all that far into the future, the Fed will need to make changes, and will probably be pushed there by mounting inflation expectations and concerns from investors.
It almost goes without saying that increases in mortgage rates are unwelcome in a housing market struggling to find traction. The National Association of Home Builders index of member sentiment did manage to rise a tick to 17 during March, but the move was insignificant, hardly above the trend of the past four months. Sales levels and traffic were unchanged from February, with only rising hope about the next six months driving the indicator upward. How even that much enthusiasm was created is a puzzle, when considered in the context of a Housing Starts report for February which sported a 22.5% decline. Single-family starts slumped by almost 12% for the month, and multi-family initiation caved as well. Permits for future activity — the drive of the HMI above — declined by more than eight percent.
A spate of warmer weather (at least compared to January) during February for much of the country led to a decline in Industrial Production, which eased by 0.1% for the period. Although not enough to overcome the 4.5% decline in utility production, mining output sported an increase for the month, as did manufacturing production, and the recovery should continue to power forward, probably led by factories as it has been for much of the recovery so far. To that end, localized manufacturing reports from The New York and Philadelphia Federal Reserve Banks both showed gains for the month, with the Philly Fed’s indicator rising to levels last seen in the 1980s. Both reports noted firm to rising input costs but gains in employment opportunities in one area were met by diminished offers in the other. If production and orders keep moving ahead, more jobs will surely follow at some point.
While that is still hoped to be the case, at the moment we’ll have to content ourselves with a slight decline in jobless claims. During the week ending March 12, “only” 385,000 new applications for benefits were filed at state windows. The gentle and general downward trend in new benefits claims continues to point to a gradually improving labor market, but it is a very slow improvement given now six to seven quarters of rising economic output.
As with the global troubles above, that’s also to the benefit of mortgage seekers. Although rates have moved off of last year’s levels, they were generated by a nascent, unsteady recovery which might have slipped into deflation. Six months or so later, and concerns of inflation are more the order of the day, and while challenged by troubles, the durability of the recovery no longer seems so much in doubt.
At some point, and probably at a faster-than-expected pace, interest rates will begin to move higher. Time may not cure all the woes which affect both us here and especially those abroad, but it does allow for time to become accustomed to them, to learn how to work both in and around them, and ultimately to focus on the longer term’s prospects. Next week’s got a fairly light calendar of economic data again, but we’ll get a look at new and existing home sales, a final review of 4Q10 GDP, an indicator of consumer moods and an economic reference point. Stock markets found some opportunities to rally on Friday, by just a little, but only a resolution of the nuclear trouble in Japan might cause much of a move in interest rates. Here’s hoping that comes as quickly as possible, even if it will mean slightly higher mortgage rates. Absent that, rates should be pretty flat next week.
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Rob Kanyur Senior Loan Officer NMLS 204420 BK 0018295 Wallick & Volk Mortgage Bankers 7033 E. Greenway Parkway, Suite 290 Scottsdale, AZ 85254 602) 361-1587 – Phone (888) 676-7807- FaxRob@wvmb.com www.RobKanyur.com |
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Insurance Mistakes to Avoid: Don’t Risk Being Underinsured
Too many Americans mistakenly believe that the coverage limits of their home owners insurance policy are linked to the market value of their home, according to the Insurance Information Institute.
In the I.I.I.’s 2011 Insurance Pulse Survey, conducted by the Opinion Research Corporation, nearly half (48%) of survey respondents came to that incorrect conclusion.
“The real estate value of a home, that is the price you can buy or sell it for, has absolutely nothing to with the amount of insurance needed to financially protect the home owner in the event of a fire or other disaster,” said Jeanne M. Salvatore, senior vice president and consumer spokesperson for the I.I.I. “Reducing insurance coverage because the market value of a home has decreased can result in being dangerously underinsured.”
One out of three respondents to the Pulse Survey reported that they purchased less home owners or auto insurance as a way to save money. A better strategy would be to take a higher deductible, which can substantially reduce insurance costs. Home and car owners can then put the savings into a purchasing the right amount and type of insurance for their specific needs, pointed out Salvatore.
Another way to save money is to comparison shop, something that seven out of 10 Pulse Survey respondents said they did to save on both their home and auto insurance needs.
Read more: http://www.houselogic.com/news/articles/insurance-mistakes-avoid-dont-risk-being-underinsured
Mortgage Interest Rates for Fixed Rate Mortgages*
Rates as of Friday, March 18th, 2011
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*Rates are subject to change due to market fluctuations and borrower’s eligibility.
*INTEREST RATES ARE BASED ON PURCHASE MONEY, PRIMARY RESIDENCE, 30-DAY LOCK, CURRENT INVESTOR GUIDELINES. AT LEAST 1.250% POINTS MAY APPLY, RATES BASED ON LOAN AMOUNT >$200K,<417K, MIN FICO 760, SUFFICIENTLY DOC’D INCOME & ASSETS REQUIRED. PREPAY PENALTY MAY APPLY. INFORMATION DEEMED RELIABLE BUT NOT GUARANTEED. RECIPIENT TO VERIFY ALL INFORMATION. ROB KANYUR AT WALLICK AND VOLK MORTGAGE BANKERS. LICENSED ORIGINATOR 204420 (602) 361-1587 BK 0018295
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