Shatsy's Blog

Interest Rates - Crazy Week!

2008-05-01T20:55:06Z

This has been a BIG week of economic news and events! Yesterday we saw the Fed reduce the Fed Funds and Discount rates by a .25% each down to 2.00% and 2.25% respectively. Remember, these rate drops directly affect HELOCs, auto loans, credit cards and short term rates...mortgage rates are determined by the bond markets and more specifically, mortgage backed securities!

Usually we see mortgage rates increase shortly after stimulating activities by the Fed because of inflation fears. Inflation is the ARCH-ENEMY of bonds!!!

This time, however, mortgage rates improved slightly because of the Fed's statement about "monitoring" inflation closely which signified to markets that the Fed may be moving away from the stimulate stance and into a do-nothing-and-watch stance. This helped keep bonds and mortgage backed securities appealing to investors which resulted in mortgage rates improving slightly.

Recently, inflation has ticked upward even though our economy is not growing. Jobs are being lost, real wages are showing weakness, and yet prices continue to increase! The increase in prices, mostly food and energy prices, can be attributed to an increase in GLOBAL demand due mostly to the continued development of China and India economies.

The jobless claims and jobs reports are built off historical averages; because of this the reports are going to be better than reality and will paint a rosier picture of the current slowing state of our economy. Mortgage backed securities will react poorly and interest rates should increase. Later, once more accurate data is available to the Bureau of Labor Statistics (BLS), former jobs reports will be revised downward and mortgage backed securities will then rebound.

So here is my advice when it comes to locking or floating your interest rate: If you are closing within the next 3 weeks, lock your interest rate now! Beyond 3 weeks, I recommend floating, however, be prepared to stomach some volatility!!!

Arizona = Field Of Dreams: "We've Built It...They Will Come!"

2008-04-22T15:31:25Z

The Office of Federal Housing Enterprise Oversight released the new U.S. monthly House Price Index (HPI) estimates for time period between January and February today! While the report didn't creep up and surprise anybody, other economic indicators for our state show that it is just a matter of time before the buyers come!

Arizona is included in the Mountain Census Division which also includes Montana, Idaho, Nevada, Wyoming, Utah, Colorado, and New Mexico.

Mountain Division Monthly Price Change Estimate

Jan - Feb = -.61%

United States Monthly Price Change Estimate

Jan - Feb = .64%

Compared to previous month's numbers, our region DETERIORATED from -.04% while the U.S. IMPROVED from -1.05%. For the Jan - Feb period, our Mountain Division ranked #1 among the 9 Divisions for the largest DECREASE in home prices!

I like to view this as, "Our home prices are becoming more affordable faster than other regions in the United States!!!" Since 1976, Arizona HPI has had only 2 previous instances of price declines: 1982 and 1988-1990. The current down trend will not last through 2009...

In fact, the Pending Home Sales Index published by Realtor.org shows an increase for our region in purchase activity since December 2007! People are still moving to our county at record numbers while employment and wages have shown resiliency during this floundering U.S. economy.

Patience is a virtue we Arizonans would benefit from in these current times...it is just a matter of time before the excess inventory of homes start to chip away. I have the patience, but my creditors aren't so virtuous...ANDALE buyers, ANDALE!!!

Rates, Rates, Rates...Where Art Thou Going???

2008-04-15T15:09:37Z

My hope is to shed a little light on why mortgage rates go up/down and to better equip you to see through all of the smoke and form your own opinion as to "how mortgage rates are doing."

Inflation (rising prices) is ARCH-ENEMY #1 to mortgage rates:

Inflation UP = Mortgage Rates UP
Inflation DOWN = Mortgage Rates DOWN

The reason for this is pretty simple: Inflation makes the interest rate that is fixed for 30 years worth less as time goes by. Here is another way to think about it: My lender will be able to buy less "things" in the future with my same 'ole 6% monthly mortgage payment because "things" will cost more in the future (INFLATION).

When outlook is for higher inflation, NEW MORTGAGES (long-term debt securities) have to be issued with higher interest rates (coupon rates) to keep investors buying these types of invesmtents. Otherwise, investors would take their dollars and invest in other things that would provide better value. There are many factors that affect demand for mortgage bonds or mortgage backed securities, but inflation is THE one with the biggest impact.

So, how can we tell what inflation is doing? There are 3 indices reported monthly that indicate what direction "prices" are heading:

Producer Price Index (PPI)
Consumer Price Index (CPI)
Personal Consumption Expenditure (PCE)

Each index has it's own idiosyncrasies and each measure "prices" differently and at different "levels". Don't let them "Bush-Whack" you (I am a conservative by the way), just remember that if the indices are up, then mortgage rates are up.

Just this morning, PPI was reported much higher for March than forecasted. As a result, mortgage backed securities are taking a significant hit this morning/afternoon in the bond market. Lenders will, or already have, increased their rates. Hopefully you locked your rates yesterday!

Expect conventional 30-yr fixed mortgage rates to hover around 6% throughout the remainder of this year. However, keep your eyes on the indices, with the weak dollar and Fed's current focus on stimulating our economy, inflation could rise out of control very quickly!

Today, more than ever before, global economic forces are dictating the direction of "prices." China and India (CHINDIA) economies are developing quickly and account for approx 33% of world's population. Their ever-growing consumption of resources are causing many "prices" to increase while our economy is contracting. Historically, when our economy is on the injured list, inflation slows to the pace of our demand. This is not happening right now. Oil, food and other commodities are still seeing price increases even though we are in a recession. To avoid a book, I will save this discussion for a future blog...

The Ultimate Gift - Learning As I Go...

2008-04-08T02:22:25Z

If you haven't seen The Ultimate Gift yet, then rent it right away, and shame on you as a hard-working entrepreneur for not seeing it yet! It reminded me that today's financial struggles with the elevated life style I brought on from the "good times" will NEVER, EVER impede my true happiness...and only adds a hard lesson learned to my journey through this thing MANY take for granted, life!

Looking back (yeah I know, hindsight is always 20/20) I wish I would have done things differently during the refinance boom...well, a few things anyways. If only I had heard the saying, "It's not how much you make, it's how much you save!" a few years earlier...like back in 2004 before I saw my income quadruple in 2005 and 2006. Even though I wasn't careless with my new money, I did somewhat take the money for granted and should have saved much more of it. Much, much more. MISTAKE, BUT LESSON LEARNED!

Did I really need a $1,300 per month car payment? Did I really need 6 bedrooms? Did I really need .75 acres with a resort-style backyard? Did I really need 2 houses? Did I really need all of those trips to Vegas? Did I really stop looking at price tags? Did I really pay someone to do my yardwork? Housework?

Trust me, I understand many people have much more than the above and have no financial worries whatsoever. But where I come from, the above is big, MUCHO big! I was raised by a disabled mother who would, even to this day, give me or any of my 4 siblings and even probably you too, her last few bucks. She lives month to month on assistance from all of our tax dollars because she was hit by a little 'ole lady while walking in a crosswalk back in the early '80's. She got a whopping settlement of $60k I believe. Disabled for life in return for $60k! WOW!

Anyways, my point was that I was raised in my formative years by a very loving, but disabled and poor mother. My childhood taught me the value of a dollar and I believe I couldn't have asked for a better teacher. I wouldn't change my early years of wanting more for anything: My childhood was a true GIFT from the man upstairs. Quite possibly, The Ultimate Gift!

Today, my passion and fire to achieve still burns brightly within and I can guarantee I will never be fooled by abundance again! My true happiness is realized by loving and being loved by my 4 children: Shilo, Jalen, Alia, and Nathan! I have to remind myself, in my daily drive for achievement, that money means nothing on judgement day: I make it a point to hug, kiss and tell each one of my children that I love them at least once a day! There is no starting over as a parent!!! Turn off the noise when you get home! Listen and see your childen! What Gift are you giving to your children?

Realtors - We need you!

2008-04-04T12:16:00Z

The recent mass exodus from our industry has cleaned out a lot of the ineptness and left the rest of us with major opportunity. With home prices falling back to earth, people continuing to move to our area, and the outlook for mortgage rates terrific...the near future is brighter!

Economic indicators are confirming recessionISH times (I know that is surprising to all of you) and inflation has remained tame and is now even showing a potential drop in the future, rates should be great for months to come.

Some areas, even here in AZ, still have 100% financing programs available. FHA financing is the new, old-tool for first time homebuyers and/or low-down-payment buyers. Until home pricess stabilize, which will be sooner in AZ than other states in the Union, FHA will be the savior! First time homebuyer seminar anyone?

Realtors, and only the strong now remain, we need you to continue your great work! The lights are beyond flickering at the end of the tunnel...Lets take advantage of the combination of low rates and low prices.

Capitalism versus Big Gov't

2008-04-02T13:24:04Z

After watching Big Ben get drilled by a Congressional board which included Ron Paul and Edward Kennedy this morning, my main thought was, "When is increased regulation and increased assistance from Government entities too much?"

The Fed's main responsibility is to not be the cause of economic downturns and to promote consistent economic growth while attempting to keep prices stable. Their tools to perform the job are few and most popular is monetary policy and manipulating the Fed Funds and Discount rates to either sitmulate/restrict growth or increase/decrease liquidity available to depository institutions and markets.

I am okay with that and believe we generally benefit from Fed activities. Bernanke seems to be certainly capable and up to the task of steering during these historic times. I am okay with the Fed's assistance in JP Morgan's acquisition of Bear Stearns only because the intention was to prevent increased fear, lack of confidence and volatility in all markets. Keep in mind, it was not a Bear Stearns bail out as often quoted in media. The Fed lent $30 billion to JP Morgan which was secured by $29 billion in assets. Bear Stearn stock was and is still nothing compared to where it was several months ago at $160 a share. Today it is just above $10 a share.

But, with Paulson's proposal to update, add and increase regulation and ongoing talks of Congress attempting to save the housing crisis....When is it too much? When is Gov't getting too big?

Shouldn't the same people who benefited from the recent housing craze be the same people who deal with the BUST?!?! Isn't capitalism built on the idea of markets governing themselves? Doesn't, as Ron Paul noted, a single addition of regulation cause the need for 2 more pieces of regulation?

I currently have 2 homes and I am upside down on both...while my conservative roots say, "you should have been more prudent!" my bank account and wallet are SCREAMING, "HELP!"

Mortgage rates on April Fools Day

2008-04-02T01:20:30Z

Mortgage backed securities are trading sharply lower today because of growing optimism in the outlook for the major investment banks. Many analysts are now speculating that we have now seen the worst of the credit crunch and will now improve going forward. Lehman, UBS, and Deutsche Bank are reporting new capital raising measures as well as removing sub prime assets from their portfolio. Mortgage backed securities are down today after favorable economic news and a very strong stock market:

· Current 30 yr fixed 6.125 %

· Current 15 yr fixed 5.375%

Current AZ rates and rates may include points

The economic calendar for the remainder of the week includes many "High-Impact" market movers including Unemployment Rate and Hourly Earnings for March. I will be sure to keep you informed...