Money, Debt, Real Estate, and Credit talk with Jeff Underwood

The Fed publishes meeting minutes 8 times annually – three weeks after each scheduled Federal Open Market Committee get-together. The Fed Minutes summarizes the FOMC meeting.

The Federal Reserve released the minutes from its August 9, 2011 Federal Open Market Committee meeting Tuesday.

The Fed Minutes contained no surprises and, as a result, mortgage rates across Arizona and nationwide have idled.

Although it gets less press attention, the Fed Minutes is every bit as important as the more highly-publicized, post-meeting statement from the FOMC. With its detailed record of conversation, the Fed Minutes highlights the discussions and debates that shape our nation’s monetary policy.

For example, here is some of what was said at the Fed’s August 2011 meeting :

• On growth : Economic growth had been slower than the committee expected
• On housing : The market “remains depressed”. Underwriting standards are “tight”.
• On rates : The Fed Funds Rate will remain low until mid-2013

In addition, the Fed talked about whether a third round of asset purchases should be announced. Ultimately, that plan was rejected by consensus.

The FOMC’s next meeting is a 2-day meeting, scheduled for September 20-21. The meeting was originally scheduled for just one day, but Fed Chairman Ben Bernanke chose to extend it to two. Wall Street believes that the extension was made so Fed members could discuss new forms of economic stimulus.

Depending on the form of said stimulus — if it should even occur — mortgage rates may rise or fall. We can’t know for certain unti the size and scope of the Fed’s plan is known.

For now, mortgage rates remain rock-bottom. There’s more room for rates to rise than to fall. If you’re shopping for a loan and the rate looks right, therefore, consider locking on it.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Last week was another volatile week for mortgage rates. Wall Street alternately sought risk and shunned it, causing mortgage-backed bonds to rise and fall rapidly.

There was a lot to move markets, too, including banking concerns across Europe, inflation figures within the U.S., and a public speech by Fed Chairman Ben Bernanke.

Conforming rates in Arizona rose to their highest levels of the week Wednesday afternoon, then receded into the weekend. 3

0-year fixed rates remain above their all-time lows set 2 weeks ago. 5-year ARMs are at all-time lows.

This week, mortgage rates figure to be equally jumpy. As well as a full slate of economic data, because of Labor Day, bond markets will be light on volume. When volume is light, pricing gets volatile.

The week’s calendar of data includes:

• Monday : Pending Home Sales Index; Personal Income and Outlays
• Tuesday : FOMC Minutes; Fed President Kocherlakota speaks
• Wednesday : Factory Orders
• Thursday : Jobless Claims; ISM Manufacturing Index
• Friday : Non-Farm Payrolls

Of all the reports, though, it’s Friday’s Non-Farm Payrolls that might move mortgage markets the most.

Jobs are crucial to the ongoing economic recovery and, from Wall Street to Capitol Hill, it’s top of mind.

If the jobs report shows more jobs created than expected, or a positive forward trend, expect bond markets to fall, pushing mortgage rates up. On the other hand, if the jobs report is soft, mortgage rates may improve.

We can’t know what rates in Gilbert will do on any given day, so the best strategy for a shopper is to shop with purpose. Know what you want, and be ready to lock when you see it.

If you wait too long, the rate will be gone.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

CNNMoney recently released its Best Places To Live 2011 list.

The annual survey is based on data from Onboard Informatics. Using Quality of Life factors such as education, crime and “town spirit”, and focusing on towns with between 8,500 and 50,000 residents, the CNNMoney survey ranks the country’s best “small towns”.

To be eligible, towns must be have a median household income greater than 85 percent, and less than 200 percent of the state median income; must not be a categorized as a “retirement community”; and must be racially-diverse.

From a list of 3,570 eligible towns nationwide, Louisville, Colorado was ranked #1.

The complete Top 10 Best Places to Live as cited by CNNMoney, and their respective average home listing prices :

1. Louisville, Colorado ($383,569)
2. Milton, Massachusetts ($577,008)
3. Solon, Ohio ($291,162)
4. Leesburg, Virginia ($486,018)
5. Papillion, Nebraska ($218,520)
6. Hanover, New Hampshire ($643,500)
7. Liberty, Missouri ($177,678)
8. Middleton, Wisconsin ($347,770)
9. Mukilteo, Washington ($345,487)
10. Chanhassen, Minnesota ($418,607)

Rankings like these can be helpful to home buyers nationwide, but it’s important to remember that the Best Place To Live survey is subjective. You may find none of the above towns to be to your liking.

You may also find the lowest-ranked city to be your favorite.

In other words, before making a decision to buy, connect with a real estate agent who has local market knowledge. That’s the best, most reliable way to make sure you get the housing data that matters to you.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Home resales slipped in July.

According to the National Association of REALTORS®, Existing Home Sales nationwide fell to 4.67 million units on a seasonally-adjusted annualized basis last month. It’s the fourth straight month below the 5 million mark, and the report’s lowest reading since November 2010.

An “existing home” is a home that’s been previously occupied or owned.

In addition, the Existing Home Sales report showed home supplies rising nationwide. At the current pace of sales, in other words, the complete, national “For Sale” inventory would be exhausted in 9.4 months. This, too, is the worst reading since November 2010.

On a units basis, however, the number of homes for sale actually fell in July. As compared to June, home resale inventory dropped 65,000 units to 3.65 million.

From these figures, we can infer that, despite low mortgage rates and lagging home values, buyer activity is slowing in Arizona and nationwide. This may be seasonal, or it may be a long-term trend.

Either way, there’s opportunity for today’s home buyers.

With mortgage rates at all-time lows, home affordability is peaking. More households can afford housing payments than during any time in history and with the fall season approaching, buyers in Chandler may find contracts negotiations to be more “friendly”.

This can mean lower sale prices and larger concessions from sellers — the hallmark of a Buyer’s Market.

It’s a good time to look at your options. Talk to your real estate agent and see what’s out there for you. Low home prices may persist, but low mortgage rates likely won’t.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Mortgage markets improved again last week, pushing mortgage rates in Arizona to an all-time low; lower than the lows set last November, even.

Last week’s low mortgage rate drivers are primarily European. Joining the debt concerns that have dogged Europe since March, a fresh wave of doubt has surfaced about the health of some Eurozone banks. The fears sparked a new wave of safe haven buying.

Global equities were socked last week and the Dow Jones Industrial Average fell for the 4th straight week. For home buyers in Chandler , though, the timing may be perfect. As stock markets lose, bond markets gain and when bond markets gain, mortgage rates drop.

According to government-group Freddie Mac’s weekly mortgage rate survey, the average 30-year fixed rate mortgage fell to 4.17% last week with 0.7 points. This is the lowest rate-and-points combination in history.

The 5-year ARM fell to 3.08 with 0.5 points.

As mortgage rates fall, though, be wary of trying to “time the market”. It’s impossible to know when rates have bottomed and mortgage rates tend to spike without notice. That’s what happened in May 2010. And then again in November 2010. And then a third time in April 2011.

When rates rise, they could tack on 0.500% or more overnight.

This week, there is a lot that can move mortgage rates. With housing data set for Tuesday release, the Eurozone stories still unfolding, and three Treasury auctions planned, it’s best to be ready for locking.

If you’re floating a mortgage rate or still shopping, consider locking your rate as soon as possible. Rates trended higher to close out last week and will be riding that momentum forward. Rates are lower than they’ve been in history.

Take advantage of it.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Last week, at its 5th scheduled meeting of the year, the Federal Open Market Committee voted to leave the Fed Funds Rate in its target range near zero percent.

The Fed Funds Rate has been near zero percent since December 2008 and, in its official statement, the FOMC pledged to leave the Fed Funds Rate untouched for at least another 2 years.

This doesn’t mean mortgage rates will be untouched for 2 years, though.

Mortgage rates and the Fed Funds Rate are two different interest rates; completely disconnected. If mortgage rates and the Fed Funds Rate moved in tandem, the chart at right would be a straight line.

Instead, it’s jagged.

To make the point more strongly, let’s use real-life examples from the past decade.

• June 2004, 529 basis points separated the Fed Funds Rate and the 30-year fixed mortgage rate
• June 2006, 168 basis points separated the Fed Funds Rate and the 30-year fixed mortgage rate

Today, the separation between the two benchmark rates is 407 basis points.

1 basis point is equal to 0.01%.

Between now and mid-2013, when the Fed may begin changing the Fed Funds Rate, the spread between rates will change based on economic expectation — not Fed action (or non-action). If the economy is expected to improve, mortgage rates in Chandler will rise and the spread will widen.

Should mortgage rates cross 6 percent before the Fed starts raising rates, it will create the widest interest rate spread in history, surpassing the 615 basis point difference set in August 1982.

At the time, the Fed Funds Rate was 10.12% and mortgage rates averaged 16.27%.

On the other hand, if the economy shows signs of a slowdown for late-2011 and beyond, mortgage rates are expected to drop.

Shopping for a mortgage can be tough — especially in a volatile environment like the current one. Mortgage rates move independent of the Fed Funds Rate. Make sure you’re watching the proper market indicators. It’s your best chance to lock the lowest rate possible.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Mortgage markets improved again last week. The combination of global economic uncertainty plus a dour outlook from the Federal Reserve pushed mortgage bonds to highs for 2011, and drove mortgage rates below their all-time lows.

Bonds were volatile, driven by the stock market’s gyrations.

On 4 consecutive days, the Dow Jones Industrial Average moved by more than 400 points. Rate shoppers in Arizona had no choice but to go along for the ride.

The week began with the market’s reaction to Standard & Poor’s U.S. credit rating downgrade. Mortgage bonds caught a boost on the news, and pushing rates lower throughout the day.

Tuesday, rates idled ahead of the Federal Open Market Committee meeting. There was speculation that the Federal Reserve would introduce a new round of economic stimulus but that didn’t happen. Instead, the Fed pledged to keep the Fed Funds Rate in its current range near zero percent until mid-2013, at least.

Mortgage rates dropped on the announcement and continued to drop until they fell to their lowest levels of the year — and of all-time — late Wednesday afternoon.

This proved to be the lowest rates of the week.

Thursday and Friday were marked by better-than-expected jobless figures and an improving Retail Sales number. Mortgage rates rose slightly.

This week, mortgage rates should be equally as volatile.

In addition to new bailout talks within the Eurozone, there is a bevy of economic data due for release in the U.S., as well as a full Fed speaker docket:

• Monday : Homebuilder Confidence Survey; Fed President Lockhart speaks
• Tuesday : Housing Starts; Building Permits
• Wednesday : Producer Price Index; Fed President Fisher speaks
• Thursday : Existing Home Sales; Fed President Dudley speaks
• Friday : Fed President Pianalto speaks

Mortgage rates have been trending lower in recent weeks and there are few reasons to think that trend will reverse. However, mortgage markets can be wildly unpredictable — especially when acted upon by an outside force such as the Federal Reserve or the U.S. government.

Stimulus and rheotoric can change mortgage rates in a hurry.

Therefore, if you see today’s rates and they fit within your budget, consider locking something in. Once rates start to rise, they’re going to rise quickly.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Tuesday, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

The vote was 7-3 — the first time in 5 meetings that the nation’s Central Bank was non-unanimous and the first time since 1992 that the FOMC adjourned with as many as three dissenters.

In its press release, the FOMC had little good to say about the U.S. economy, noting that since its last meeting in July:

1. Growth has been “considerably slower” than expected
2. Labor market conditions have deteriorated
3. Household spendng has “flattened”

The Fed also noted that the housing sector remains depressed.

On the positive side, the Fed said that business investment in equipment and software continues to expand, and that energy costs have dropped and no longer contribute to inflationary pressures on the economy.

In fact, the Fed worries that inflation may be running too low for the country’s good.

To that end, the Federal Reserve has pledged to keep the Fed Funds Rate in its current range near 0.000 percent “at least until mid-2013″. This is a departure from prior statements in which the Fed gave no such date.

Mortgage market reaction to the FOMC statement has been positive this afternoon. Mortgage rates in Arizona are improving, but note that sentiment can shift quickly — especially in a market as uncertain as this one.

If today’s mortgage rates look good in your household budget, consider locking in a rate.

The FOMC’s next scheduled meeting is September 20, 2011.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Mortgage markets were especially volatile last week, taking rate shoppers in Arizona on a roller-coaster ride. The week’s news schedule was full. It included debt ceiling debates, jobs figures, and ongoing maneuverings within the Eurozone.

Each story a material impact on mortgage rates and, as a result, rates varied wildly from day-to-day.

Throughout the early part of the week, mortgage rates fell.

Monday, bond markets improved as leaks of the congressional debt ceiling agreement surfaced. Investors approved of the accord’s general terms and bought U.S.-backed debt to prove it. Tuesday, when the final agreement was reached and the terms were made public, mortgage rates dropped again.

This is because the debt ceiling agreement is based on spending cuts and tax increases. In response, analysts revised lower their respective growth estimates for the United States, benefitting bonds.

By Thursday, markets were in full rally mode.

On the eve of the July jobs report, traders flocked to the ultra-safe bond market; “whispers” put the net jobs created figure at a negative. Wall Street feared the worst. By Thursday’s close, mortgage pricing was at its best levels since November 2010.

Friday morning, though, markets recoiled. When the Non-Farm Payrolls report showed much-better-than-expected growth, it triggered a bond market sell-off and rates reversed higher. Rates rose more Friday than on any single day since November 30, 2010.

If you were quoted a mortgage rate on Thursday, on Friday, the same mortgage rate cost 1 discount point more.

This week, rates may rise or fall — it’s too soon to tell.

Friday afternoon, after markets closed, S&P downgraded the long-term debt of the U.S. government a notch. Typically, lower credit ratings means higher borrowing costs which leads to higher mortgage rates, among other things. However, it’s unclear how markets will react to the S&P decision.

Plus, the Federal Open Market Committee meets Tuesday and that, too, can affect markets.

As always, the prudent move is to lock your mortgage rate if its payment and terms are sensible. There’s too much volatility to know what markets might do tomorrow.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

The United States is projected to reach its legal $14.294 trillion debt limit today. The limit was set by Congress February 12, 2010. The U.S. Treasury may not issue new debt beyond the debt ceiling.

Since April 2011, Congress has debated ways to remain below the nation’s $14.292 trillion borrowing limit. The debate commenced with the passage of the 2011 U.S. Federal Budget which featured a $1.645 trillion deficit.

This multi-trillion dollar deficit ensured that the debt ceiling would be touched at some point during the current fiscal year.

That date was May 16. It took an intervention from the Treasury Secretary to temporarily extend the limits; an “extraordinary measure” meant to keep the U.S. government from defaulting on its debt.

With additional room to borrow, then, the U.S. Treasury’s new debt ceiling date was moved to August 2. Congress has been debating the federal budget since mid-May with the dual-goal of (1) Remaining below the federal debt limit, and (2) Creating a budgetary surplus for the future.

An agreement is expected today.

For home buyers and rate shoppers in Gilbert , this is an important development. The debt ceiling agreement will influence mortgage markets and, as a result, require amendments to home affordability calculations. As mortgage rates change, your purchasing power does, too.

Unfortunately, we don’t know in which direction mortgage rates will go.

Since the prospect of a deal was first hinted Friday, mortgage rates have been improving. Conforming, 30-year fixed rates are down nearly 0.250 percent, lowering a $150,000 mortgage payment by $22 per month.

The final deal terms of a deal, however, could lead rates higher.

As always, the safest play is to lock your mortgage rate if you are comfortable with its proposed payment. Yes, mortgage rates may move lower in the future but, then again, maybe they’ll move higher.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money