The Federal Open Market Committee starts a 2-day meeting today in Washington.
The scheduled get-together ends at 2:15 PM ET Wednesday after which the FOMC will issue a press release to the markets.
Consider locking your mortgage in advance of the press release.
The FOMC meets 8 times annually and its adjournments are among the biggest market-movers of the year.
The Fed's post-meeting press release is a direct look into the mind of the Federal Reserve and Wall Street is looking for clues anywhere it can find them.
After its August 2009 meeting, the FOMC said in its press release:
Since then, however, credit risks have lessened on Wall Street, consumer spending have shown signs of life and Fed Chairman Ben Bernanke said the recession is "very likely over".
This is why tomorrow's FOMC press release is so important. Markets don't expect the Fed to raise or lower the Fed Funds Rate, but they do expect the Fed to shed light on its next series of moves.
If the Fed alludes to inflation and stronger growth ahead, mortgage rates should rise. By contrast, reference to slower growth ahead should help keep rates steady.
The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent -- the lowest it's been in history. However, it's what the Fed says Wednesday that will matter more than what the its does.
If you're floating a mortgage rate or wondering if the time is right to lock, the safe approach is to lock prior to 2:15 PM ET Wednesday.
Getting approved for a mortgage is about to get harder.
For the second time in less than 3 months, Fannie Mae announced changes to its mortgage guidelines.
In its official announcement, Fannie Mae details the updates, meant to reduce the mortgage firm's overall risk.
The first major change is with respect to credit scoring. All Fannie Mae loans -- whether underwritten electronically or manually -- require a 620 credit score minimum. There are very few exceptions.
A second change relates to loans with private mortgage insurance. Homeowners whose loan-to-value exceeds 80 percent now have a choice:
Both options pass higher costs to consumers.
Then, a third change relates to maximum debt-to-income ratio. As announced in a separate document, Fannie Mae will no longer approve expense ratios exceeding 45 percent except with very strong assets and credit to back it up. In no case can expense ratios exceed 50 percent.
There are other changes, too, including the elimination of seldom-used mortgage products and new risk-based pricing on "expanded level" approvals.
Fannie Mae implements its updates during the weekend of December 12.
Therefore, if you're going to need (or want) a new mortgage later this year, consider moving up your timeframe to October or November. Once the guidelines change, getting approved for a mortgage is going to be tougher.
The mortgage market resumed its winning streak last week after a 1-week hiatus. Markets rallied into the weekend and mortgage rates eased lower overall.
It's the third week out of four that rates improved and, ironically, rates may have dropped last week because traders were watching the wrong metrics.
With respect to housing, analysts found August's Existing Home Sales and New Homes Sales reports disappointing.
Both posted weaker-than-expected sales volume, sparking a stock market sell-off that led bond markets higher.
It was the wrong reaction.
Versus home supply, the number of monthly sales isn't nearly as important to the national housing recovery and the supply of homes fell in August. If Wall Street had been paying better attention, mortgage rates may have risen instead.
The supply of homes for resale fell nearly a month, and of new homes by 0.3 months.
This week will be heavy with data so don't expect rates to stay low for long.
Early in the week we'll get the Case-Shiller Index, a few consumer confidence surveys, and the Personal Consumption Expenditures report. Late in the week, it's the September jobs report.
With mortgage rates are trolling near their lowest levels of the quarter, it may be prudent to lock something in to avoid the risk of rates rising.
The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.
It also reiterated plans to support the mortgage market to the tune of $1.5 trillion.
In its press release, the FOMC noted that the U.S. economy is "picking up following its severe downturn" and that financial markets have "improved further".
It's the second consecutive post-FOMC statement in which the Fed appears somewhat optimistic -- a signal that the recession will end soon, or has already ended.
That said, the economy still has some soft spots and the Fed made a point to single them out. Each poses a distinct threat to economic recovery.
Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent "for an extended period" and to honor its $1.25 trillion commitment to the mortgage bond market.
However, the FOMC changed its timeframe on the mortgage-backed bond buys, extending its deadline to March 2010. This move should help the Fed keep mortgage rates from rising too high as the economic expansion takes hold.
Market reaction to the Fed's press release is positive. After an early day sell-off that drove rates higher by about a quarter-percent, most of the pressure is easing. Pricing is worse on the day overall, but well off its lows.
The FOMC's next scheduled meeting is November 3-4, 2009.
As reported by the government, home prices are rising nationwide, up 0.3 percent in July.
Furthermore, versus November 2008, the Home Price Index has clawed back to unchanged.
The housing market appears to be holding its own.
However, we have to be careful about putting our full faith in the Federal Housing Finance Agency's data. It's somewhat flawed.
As an obvious example, HPI only accounts for homes with Fannie Mae- or Freddie Mac-backed mortgage. Lately, the percentage of homes meeting that description is shrinking.
As FHA financing rises in popularity, Fannie and Freddie back far fewer loans than in the past. Furthermore, the HPI sample set also excludes newly-built homes and multi-unit properties.
Because of these exclusions, some analysts call the HPI incomplete. The same could be said of all home price metrics, however -- including the venerable Case-Shiller Index.
Therefore, what should be of interest to today's buyers and sellers is that all of "popular" home valuation models seem to be telling the same story -- home prices have stopped falling and look like they're beginning to rebound.
For a region-by-region breakdown of the Home Price Index, visit the FHFA website.
After improving in the two prior weeks, mortgage markets finished last week unchanged overall.
Mortgage rates were down early in the week but managed to give up all of their gains late-Friday afternoon. It's the same volatility variety we've seen in most weeks this year.
Markets moved on to both positive- and negative-type news last week. On the positive side:
On the negative side, Housing Starts idled and corporate earnings fell flat.
This week, the market moves on.
Investors will watch several key releases including Existing Home Sales on Thursday, and Consumer Sentiment and New Homes Sales on Friday. The most important event of the week by far, however, is the scheduled, 2-day meeting of the Federal Open Market Committee.
The FOMC is the policy-setting group of the Federal Reserve and each time it meets, markets have a tendency to get volatile.
Markets expect the FOMC to leave the Fed Funds Rate within its current "target range" of 0.000-0.250 percent but that doesn't mean mortgage rates will remain unchanged as well. Depending on the verbiage of the FOMC's post-meeting press release, mortgage rates could rise or fall by a lot.
The FOMC adjourns from its 2-day meeting Wednesday at 2:15 PM.
(Image courtesy: Wikipedia, licensed under Creative Commons)
Housing Starts on single-family homes took a step backwards last month, falling month-over-month for the first time since January.
A "housing start" is new home on which construction has started.
Don't let the slowdown fool you, however -- the housing market's recovery is still very much underway.
Builders were bound to take a construction breather sometime -- especially with the looming expiration of the First Time Home Buyer Tax Credit. The last thing they want is to be saddled with excess supply.
Some of the news coverage categorized August's Housing Starts as troubling. That's likely overstating it. One down month after 8 consecutive increases is not only acceptable, but it's expected, too.
Single-family starts are up 34 percent on the year. The housing market is recovering just fine.
According to home builders around the country, the housing market is looking good.
Each month, the National Association of Home Builders releases its Housing Market Index report, a survey meant to "take the pulse of the single-family housing market".
Respondents report on three facets of their business, each series weighted and averaged:
For the 3rd straight month, the Housing Market Index improved. It's now at its highest level since May 2008.
The housing market has shown signs of life since March. Both Existing Home Sales and New Homes Sales have soared and home values are up in a lot of towns. Builders showing confidence is another positive signal.
Fed Chairman Ben Bernanke said that the recession is "very likely over" and strong housing data corroborates that statement.
As the economy strengthens and housing does, too, home sellers will start to regain the upper-hand in contract negotiations. If you're an active home buyer, therefore, and looking for "a deal", be aware that time is close to running out.
Mortgage markets improved last week, briefly touching their best levels in 3 months.
However, a rough Friday afternoon took away some of those gains.
Mortgage rates touched their lowest levels of the week Friday morning before tacking on an eighth-percent or more over the last 90 minutes of trading.
It's the second straight week in which mortgage rates fell.
Last week was an odd week, of sorts, because economic data was lacking. Markets, therefore, improved mostly on momentum plays and a general shift from cash positions into bonds.
This week, data returns.
In addition to the Consumer and Producer Price Indices -- "Cost of Living reports" for households and businesses, respectively -- markets will also digest a Retail Sales report, Housing Starts for August, and 3 speeches from members of the Federal Reserve.
Each has the power to move markets.
Furthermore, Wall Street will be taking positions ahead of next week's Federal Open Market Committee meeting. The Fed is expected to leave the Fed Funds Rate in its current range near 0.000 percent but don't forget -- the Fed doesn't control mortgage rates.
Just because the Fed Funds Rate won't change doesn't mean mortgage rates won't. Expect volatility Tuesday and Friday, and be wary of momentum. Mortgage rates tend to rise faster than they fall.
If you've been floating your mortgage rate over the past few weeks, it may be prudent to lock in Monday or Tuesday.
Once again, the country's foreclosures are concentrated in just a few states.
As reported by foreclosure-tracking company RealtyTrac.com, more than 50 percent of the country's foreclosure-related actions in August occurred in just four states:
The rest of the "Top 10" foreclosure states included Arizona, Illinois, Georgia, Ohio, Texas and New Jersey.
Versus July's numbers, the U.S. foreclosure rate improved last month. However, the August data is awful in comparison to last year -- foreclosures are up nearly 18 percent.
The silver lining? High foreclosure rates are yielding tremendous opportunities for today's home buyers. Buyers of distressed properties now account for about one-third of all home sales and low mortgage rates and a federal tax credit are spurring sales.
Search the complete August 2009 foreclosure report for yourself, including foreclosure heatmaps and other trends on the RealtyTrac website.
By its most common definition, a quitclaim deed is a document by which one person passes legal and financial ownership of a home to another person.
It's also a way for an owner of a home to remove himself from the title to the property.
Often misspelled as "quick claim deed" or "quit claim deed", quitclaim deeds have a multitude of applications, including:
In order to quitclaim a property, the grantor must have the legal right to assign the property to a grantee, or else the quitclaim deed is worthless. For example, you can't quitclaim your interest in City Hall to your neighbor because you don't actually own City Hall.
This is where quitclaim deeds vary from warranty deeds (or grant deeds) -- the types of transfers that occur when real estate is sold. In instances of the former, the title to a home is guaranteed to be clear.
Before using a quitclaim deed on your own home, consult an estate planning attorney. Transferring real property can trigger ruin a will, or trigger taxes -- it's important to consult a professional for help.
Mortgage markets improved slightly last week overall, but closed out the week much worse from the best levels of the week.
On Wednesday, briefly, mortgage rates touched an 8-week low. Following that, mortgage rates began to climb and stayed on an upward trajectory clear through Friday's closing.
Rate shoppers suffered, realizing a 0.250 percent rise in rates -- roughly $32 per month per $200,000 borrowed.
The biggest story of last week was the U.S. jobs report. It showed the Unemployment Rate climbing to 9.7 percent and a loss of 216,000 jobs nationwide.
Neither figure was a surprise, per se, but Wall Street had visions of a stronger showing. Investors want to see strength in housing and employment and, for now, they're only getting the former. And so long as the U.S. economic future is unclear, mortgage rates will remain unpredictable.
This week, there isn't much news, but there are some stories to keep an eye on:
When there's a lack of economic data, mortgage rates tend to trade on trends. If you're shopping for a mortgage, watch for developing patterns and be ready to lock at a moment's notice if mortgage rates are rising -- rates tend to worsen with more speed than at they improve.
Volume figures to be light on Wall Street today as traders get a head start on Labor Day weekend. It could make shopping for a mortgage a bona fide challenge.
Expect rate volatility this morning and afternoon and, therefore, by extension, expect wild swings in the Home Affordability Index.
As mortgage rates rise and fall, monthly mortgage payments do, too.
The relationship between "vacation days" and mortgage rate volatility stems from 2 facts -- (1) Conforming mortgage rates are based on the price of mortgage-backed bonds, and (2) mortgage-backed bonds trade just like stocks. You can't make a deal without matching a buyer and a seller at a specific price.
With so many traders on vacation today, therefore, there are fewer opportunities to match buyers and sellers. As a result, expect mortgage bond prices to rise and fall with more velocity than on a "normal" day -- especially because the August jobs report was just released.
So far this morning, mortgage rates have been jumpy and are higher versus Thursday's close.
That said, mortgage pricing is fluid, changing every minute of every day. Today, expect those changes to be exaggerated. If you have a chance to lock a favorable rate, consider taking it because, before long, the rate could be gone.
In what's becoming a regular occurrence, housing data blew away economists expectations Tuesday.
As reported by the National Association of Realtors®, the Pending Home Sales Index posted its 6th consecutive monthly gain in July.
After a meteoric rise that started in January, the index is now at its highest levels in more than 2 years.
A "pending home sale" is a home that is under contract to sell, but not yet closed. It's not the same as an actual home sold, but data shows that nearly 80% of homes under contract close within 2 months and many more close in months 3 and 4.
Home buyers -- take note. When the Pending Home Sales Index is rising, it means that market activity has picked up. This can lead to any one, or a combination, of the following:
So, consider yourself alerted. If you're buying a home in the next several months, expect the recent run in Pending Sales to lead to a run in closed sales, too. That should lead home prices higher in most markets.
Indeed, we're already seeing it. Case-Shiller says prices are on the upswing.
In a bit of good news for the economy, Consumer Sentiment fell to 4-month lows in August. The drop wasn't "good news", per se, but because it wasn't nearly as large as economists expected, Wall Street cheered it.
The index, jointly published by the University of Michigan and Reuters, measures how Americans feel about their situation today, and how they envision it six months in the future.
Since bottoming 5 months ago, consumer sentiment has added more than 10 points.
Rising Consumer Sentiment figures can foreshadow economic growth because confident consumers are more apt to spend money on big-ticket items including appliances, automobiles, and, of course, new homes.
The recent run of sentiment data is one more reason to believe a full economic recovery is underway.
That said, the Consumer Sentiment survey has its flaws.
For one, the survey's sample set includes just 500 households nationwide and that's not a true cross-section of America. And second, just because people feel more confident about their finances doesn't always mean they'll spend more money -- sometimes, they choose to save.
For now, though, stronger-than-expected sentiment data should help propel both retail sales and home sales volume through the fall season, and may even create some inflationary pressure on the economy.
If these levels are sustained, expect that mortgage rates will rise.
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