This Week’s Market Commentary

This week brings us only four pieces of economic data that have the potential to influence mortgage rates in addition to two Treasury auctions. We are also still in earnings season, so any surprises in the corporate releases could affect stock and bond trading, leading to changes in mortgage rates.

There is nothing of significance in terms of economic releases due out Monday or Tuesday except for a couple of regional manufacturing reports that usually don’t have an impact on mortgage pricing. Look for stocks to be the biggest influence on bond trading and mortgage rates those days. Stock strength will likely translate into bond weakness and slightly higher mortgage rates. On the other hand, if the week starts off with stocks in selling mode, we could see mortgage rates move lower early this week.

June’s New Home Sales starts the week’s economic releases late Wednesday morning. This Commerce Department report gives us a measurement of housing sector strength and mortgage credit demand. Analysts are expecting it to show a small increase in sales of newly constructed homes, indicating that the new home portion of the housing sector gained some strength last month. That would be considered negative news for bonds, but since this data tracks only a small percentage of all home sales it usually has little impact on the bond market and mortgage rates unless it varies greatly from forecasts.

The Commerce Department will post June’s Durable Goods Orders at 8:30 AM ET Thursday. Current forecasts are currently calling for an increase in new orders of 1.0% from May to June. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. A much stronger than expected number may lead to higher mortgage rates Thursday morning because it would hint at economic strength. If it reveals a large decline in new orders, mortgage rates should drop Thursday morning. It should be noted though that this data is known to be extremely volatile from month to month, so a minor difference between forecasts and the actual reading may not move the markets or mortgage rates.

There are two economic releases scheduled to be posted Friday morning. The first is the preliminary reading of the 2nd Quarter Gross Domestic Product (GDP), which is considered to be the best indicator of economic growth or weakness. It is the sum of all goods and services produced in the U.S. and usually has a great deal of influence on the financial markets. This reading is arguably the single most important we get regularly. Current forecasts are estimating that the economy grew at a 1.2% annual rate during the second quarter. A faster pace will probably hurt bond prices, leading to higher mortgage rates Friday. But a smaller than expected reading would likely fuel a bond market rally and lead to lower mortgage pricing.

The week’s final piece of data is the revised reading to July’s University of Michigan Index of Consumer Sentiment that will help us measure consumer optimism about their own financial situations. This data is considered relevant because rising consumer confidence usually translates into higher levels of spending. This adds fuel to the economic recovery and is looked at as bad news for bonds. Friday’s release is an update to the preliminary reading we saw two weeks ago, so unless we see a drastic revision to the preliminary estimate of 72.0, I think the markets will probably shrug this news off.

Also worth mentioning are a couple of Treasury auctions that may affect bond trading and mortgage rates this week. The two most important are Wednesday’s 5-year Note and Thursday’s 7-year Note sales. Results of this week’s auctions will be posted 1:00 PM ET each day. If investor interest is strong, we can expect the broader bond market to rally and mortgage rates to move lower. However, lackluster demand could lead to bond selling and higher mortgage rates Wednesday and Thursday afternoons.

Overall, I am expecting a relatively active week in the financial and mortgage markets. We will likely see the most movement in mortgage rates the latter part of the week. The most important report of the week is Friday’s preliminary GDP reading, making it the most important day. We could see movement in rates several days, but I believe Friday will be the key day in determining if rates move higher or lower on the week.

Now Cheaper To Buy Than To Rent

It is now considerably cheaper to own a home than to rent that same home, something unheard of since 2008.

This and other promising information about the housing market was recently released by Harvard in their annual “State of the Nation’s Housing,” an in-depth study performed by The Joint Center for Housing Studies at Harvard University.

Because of historically low mortgage rates and low home prices post-recession, it is a perfect time to buy.

On the other hand, rent prices are soaring, especially in the Bay Area. According to Trulia, San Francisco and Oakland saw the biggest jumps in rent in the United States over the last year, with increases of 14.7 percent and 11.2 percent, respectively.

“With rents up, home prices sharply down, and mortgage interest rates at record lows, mortgage costs relative to monthly rents haven’t been this favorable since the early 1970s,” said Eric S. Belsky, managing director for the Joint Center for Housing Studies at Harvard.

The report also noted that today, mortgage payments for the median priced US home are roughly half of what they were in 1990. The study showed that mortgage payments are now 23% less than rent payments for the median priced home.

This means that it is a fantastic time to be a home buyer, and to get off of the fence if you’ve been waiting for the market to turn around.

Take a look at the entire Harvard study here:
http://www.jchs.harvard.edu/research/state_nations_housing.

This Week’s Market Commentary

This week brings us the release of three relevant economic reports for the bond market to digest in addition to the minutes from the last FOMC meeting and two fairly important Treasury auctions. Only one of the economic reports is considered to be of high importance and all of the reports are scheduled for release the middle and latter parts of the week.

This means we are likely to see the most volatility in mortgage pricing between Wednesday afternoon and Friday morning. There are also some heavily watched corporate earnings releases scheduled for the stock markets this week that can influence bond trading and therefore, mortgage pricing several days.

There is nothing of relevance scheduled for release today or Tuesday except some high profile corporate earnings reports. The first data of the week is May’s Goods and Services Trade Balance report early Wednesday morning, which measures the size of the U.S. trade deficit. This data is not considered to be of high importance to the bond market and will not likely have much of an impact on mortgage rates. However, if it does vary greatly from analysts’ forecasts of a $48.9 billion deficit, we may see some movement in bond prices and possibly a slight change in mortgage pricing. This is the least important of this week’s events.

Also worth noting about Wednesday is the afternoon release of the minutes from the last FOMC meeting. There is a possibility of the markets reacting to them following their 2:00 PM ET release, especially if they show unexpected dissention among some of its members during discussion and voting at the last meeting or give any indication of the Fed’s possible next move with monetary policy. Of particular interest will be discussion about a potential QE3 program.

Furthermore, Wednesday also has the first of two important Treasury auctions when 10-year Notes will be sold. That sale will be followed by a 30-year Bond auction Thursday. These sales can influence market trading in bonds and possibly affect mortgage rates. If the sales are met with a strong demand from investors, particularly Wednesday’s sale, we should see afternoon improvements in bonds that could lead to downward revisions to mortgage rates. However, if buyers stay on the sidelines as they did with the recent 5-year and 7-year Note auctions, we may see bonds fall after results are posted at 1:00 PM ET and mortgage rates move higher those days.

The next monthly data comes Friday morning when the final two reports are posted. The first is June’s Producer Price Index (PPI) from the Labor Department. It is a very important release because it measures inflationary pressures at the producer level of the economy. It is expected to show a 0.6% decline in the overall reading and a 0.2% increase in the core data reading. The core reading is the more important of the two because it excludes more volatile food and energy prices. The bond market should react favorably if we get weaker than expected readings, but a larger than expected rise in the core reading could send mortgage rates higher Friday.

The final report of the week is the University of Michigan’s Index of Consumer Sentiment. This index is released in a preliminary form each month and then followed up two weeks later with a final reading. The preliminary reading for July will be posted late Friday morning and is expected to rise slightly from June’s final reading of 73.2. This would indicate that consumers were a little more comfortable with their own financial situations this month than last month. It is believed that if consumers are confident in their own finances, they are more apt to make large purchases in the near future. And with consumer spending making up over two-thirds of our economy, investors pay close attention to reports such as these. So, a decline in confidence would be good news for mortgage rates because it means many consumers will probably delay making a large purchase in the immediate future, limiting economic activity.

Also worth noting is the fact that tomorrow kicks off the corporate earnings reporting season when Alcoa posts their quarterly results. Market participants are anxiously waiting for these announcements to see how our economy and the global financial crisis are affecting earnings. Just as important as this past quarter’s results are their forward-looking estimates. If revenue, earnings and projections from the big-named companies exceed expectations, stocks will likely rally. This would make bonds less appealing to investors and lead to bond selling. But if results are weaker than expected, indicating that the global economy is stifling earnings, bonds will be more attractive to investors as stocks slide. That could help boost bond prices and help lower mortgage rates.

Overall, it is difficult to try to label one particular day as the most important this week. It is easy to say the least important will likely be tomorrow or Tuesday with no economic events scheduled, but the stock markets could react heavily to earnings news and influence bond trading enough to move mortgage rates. The single most important day for the bond market is either Wednesday due to the 10-year Note auction and the release of the FOMC minutes or Friday morning when the two most important economic reports of the week will be posted. Accordingly, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate.

Buying Short Sales or Foreclosures

There’s no question that negotiating the short sales or a foreclosure can be time-consuming and frustrating. It can take months. But if you’re patient and willing to do the work, your reward will be a great house at a bargain price.

Short sales

For a distressed property, you could be dealing with third parties, each with their own agenda and process rules.

On short sales, banks will price a home close to the market value, but they are often willing to take less to avoid a costly foreclosure. The average short sale in the past year has sold at14 percent off the list price, compared with a 7 percent discount for foreclosure and regular sales.

Dealing for a foreclosure
Because banks are eager to unload properties they own, they list the home at a price at which they think it will sell quickly. These properties are often bought for cash by investors. In California, 31 percent of recent deals were by cash, according to Money magazine.

In some cases, the bank that handles the foreclosure may not own the loan. During the real estate boom years, many loans were sold off to other investors. In that case, the bank who owns the property has to consider the amount investors who own the loan are willing to accept.

Wells Fargo short sale and foreclosure servicing department says, on loans insured by the Federal Housing Administration, lenders can accept no less than 88 percent of appraised fair market value in the first 30 days. That declines to 84 percent after 60 days.

How to make an offer
In deciding what to bid on a foreclosure or short sale, remember that banks aren’t interest in making several counteroffers, though they may come back to you once or twice. In weeks to come, you could resubmit the offer and it might be accepted.

Your initial bid should be 10 percent to 20 percent below the list price.