MMG Weekly: Consumer Inflation Hot in June

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  In This Issue  
Last Week in Review:
 Key inflation and housing data was released, plus Fed Chairman Ben Bernanke made some important remarks.

Forecast for the Week: Look for more key housing data, as well as Jobless Claims and Consumer Sentiment.

View: Add hours to your day with these great tips.
  Last Week in Review  
"Be willing to make decisions." General George Patton.
 And that's exactly what the Fed must be willing to do when it comes to their Bond purchase program known as Quantitative Easing (QE). Read on to find out what this could mean for home loan rates.

inflationRemember that the Fed has been purchasing $85 billion a month in Bonds to help lower unemployment and stimulate the housing market and the economy overall. Last week, Fed Chairman Ben Bernanke noted that these purchases are by no means on a preset course and that Bond buying could be reduced at faster pace, a slower pace, or even increased for a time, depending on outlook. Bernanke also mentioned the word deflation last week for the first time in recent memory, and this could pave the way for QE to last into 2014.

The bottom line is that the Fed's decision on QE will be data dependent. If inflation starts to rise and economic reports continue to be strong, the Fed could consider tapering its Bond purchases sooner rather than later. Whether this will lead to higher home loan rates--and how much higher--remains to be seen.

Speaking of key data points released last week, the Consumer Price Index rose by 0.5 percent from May to June due to rising prices in gasoline, food, clothing, medical costs and housing. This number was above expectations and the second highest reading this year. It is important to note that the year-over-year Core CPI (the reading that strips out volatile food and energy prices) ticked down a notch, which is likely why the Fed continues to say that inflation remains tame.

Over in the housing market, Housing Starts declined by nearly 10 percent in June from May to 836,000. This was below expectations and the lowest level since August 2012. The drop was attributed towards a big decrease in apartments. Building Permits, a sign of future construction, also fell by 7.7 percent, below expectations.

Meanwhile, Retail Sales in June declined to 0.4 percent from 0.5 percent in May. It's important to note that Retail Sales make up 30 percent of consumer spending. The latest Jobs Report showed a lot of part-time jobs were created and confirmed that wages for most people have not grown at all. Without wage growth, we should not expect any robust Retail Sales or pickup in economic activity. This is another data point the Fed will be watching as it makes decisions regarding QE.

The bottom line is that now remains a great time to consider a home purchase or refinance, as home loan rates remain attractive compared to historical levels. Let me know if I can answer any questions at all for you or your clients.
  Forecast for the Week  
Several key housing reports will be released this week.
  • Existing Home Sales data kicks off the week on Monday and New Home Sales will be released on Wednesday. The reports come after last week's big drop in Housing Starts.
  • As usual, Weekly Initial Jobless Claims will be reported Thursday. Last week's claims fell by 24,000 to 334,000, but the decline was due in part to factories undergoing their usual summer shutdown for a few weeks.
  • Look for the Consumer Sentiment Index on Friday.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on. 

When you see these Bond prices moving higher, it means home loan rates are improving -- and when they are moving lower, home loan rates are getting worse. 

To go one step further -- a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Bonds and home loan rates attempted to rally last week. I'll continue to monitor their movement closely.

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Jul 19, 2013)
Japanese Candlestick Chart
  The Mortgage Market Guide View...  
Power Productivity
9 Ways to Add 5 Hours to Your Day

Never wait alone. Checkups, oil changes, long lines and hold times--all of these contribute to significant chunks of idle time. Rather than catching up on the latest celebrity gossip, bring something to work on. (30 minutes)

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Write everything down. How many times have you gone to the grocery store with the list in your head, and still forgotten something? Write short lists on a sticky note, or simply text yourself. Same goes for the office: carrying a to-do list in your head is not just a recipe for forgetting all you have to do, it's a stress generator. (30 minutes)

Free your hands. Holding a phone in the crook of your neck limits your ability to do much else. Handle calls while cooking, cleaning, and driving with a headset. (30 minutes)

Call them all. Instead of making three or four calls to different people on the same action item, make a conference call. is both free and reliable--and even gives you your own line. (20 minutes)

Techno Freeze. Identify your most productive time during the day then turn off tech that distracts you. Setting aside email and phone for that period can easily double or triple your productivity. Turn off your TV early and save an average of 2.6 hours a day--11 days a year--according to the Bureau of Labor Statistics. (90 minutes)

Waffle check. Every minute you spend deciding what to do, buy, or wear is time you could use elsewhere. Knowing how much your time is worth per hour can help you avoid indecision. For example, "shopping around" for two hours to save $10 on shipping only makes sense if your time is worth $4 an hour. (30 minutes)Economic Calendar for the Week of July 22 - July 26




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MMG Weekly: Consumer Inflation Hot in June


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