Jun

13

In This Issue…

Last Week in Review: Ben Bernanke spoke, but did the markets listen? Find out what he said, and how home loan rates reacted.
Forecast for the Week: A full week of economic reports is ahead, with news on inflation, housing, manufacturing, and more.
View: Still wondering what to do for Father’s Day, coming on Sunday June 19th? Check out the View article for some great ways to celebrate Dad.
Last Week in Review

They say “actions speak louder than words.” But last week, words had a big impact on the market, especially those by Fed Chairman Ben Bernanke. What did he say, and what was the impact on home loan rates? Read on for details.
Last week, Bernanke essentially made some downbeat and economically depressing comments, saying that “the economy is still producing at levels well below its potential.” Remember that weak or negative economic news and comments normally hurt Stocks and helps Bonds, as investors will move money from Stocks to what they see as safer investments like Bonds (including Mortgage Backed Securities, upon which home loan rates are based). And that’s part of what we saw happen last week: Bonds and home loan rates improved on these negative economic comments, while Stocks weakened.
But that’s not all Bernanke said last week. He also spoke about inflation, saying, “FOMC participants currently see the recent increase in inflation as transitory and expect inflation to remain subdued in the medium term.” Why is this significant? Inflation is the arch enemy of Bonds and home loan rates, because it erodes the value of the fixed return provided by a Bond, which causes home loan rates to rise. This means that Bonds, and therefore home loan rates, typically worsen at the first sign of inflation. But Bernanke playing the role of inflation dove last week (an inflation “dove” believes inflation will have a minimal impact on the economy, the opposite of an inflation “hawk”) also helped Bonds and home loan rates improve.
So what does this mean for the markets and home loan rates in the short- and long-term? Here’s a visual that will help explain things. Imagine a child playing with a yo-yo riding on an escalator. If Bond prices are the yo-yo, you can see how they would be moving up and down like the action of the yo-yo in the short term. And this is what we are seeing right now: Bond prices and home loan rates are moving day to day in somewhat volatile fashion but continue to move in an improving trend. But just like the child will reach the end of the escalator, Bonds and home loan rates will eventually reach the end of their improving trend… and when they do they will likely worsen quickly, as history attests.
The bottom line is that home loan rates still remain near some of the best levels we’ve seen this year, and it’s important to take advantage of these levels while they remain. If you have been thinking about purchasing or refinancing a home, call or email me to learn more about why now is a great time to benefit from today’s historically low rates. Or forward this newsletter on to someone you know who may benefit.
Forecast for the Week

After last week’s quiet economic report calendar, this week’s calendar is jam-packed. Look for:
• Tuesday’s Retail Sales Report: If sales turn out to be weak, this will add evidence to the belief that our economy is slowing down. And though we want the economy to improve, a weak report could help Bonds and home loan rates.
• A double dose of inflation news with Tuesday’s Producer Price Index, which measures inflation at the wholesale level, and Wednesday’s Consumer Price Index. Will these reports coincide with Bernanke’s remarks on inflation from last week?
• Job news with Thursday’s weekly Initial and Continuing Jobless Claims Report. Last week’s Initial Claims came in at 427,000, showing that the job market still has some work to do to get below and stay below – the psychologically significant 400,000 mark once again.
• Thursday also brings housing news, with reports on both Housing Starts and Building Permits, and manufacturing news with the Philadelphia Fed Index, which is considered an important indicator of the manufacturing industry.
• Rounding out the week is Friday’s Consumer Sentiment Index. This index is important because the level of consumer sentiment is directly related to the strength of consumer spending, which accounts for two-thirds of the economy.
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.
As you can see in the chart below, Bonds and home loan rates continue to improve, though as discussed above, volatility remains rampant. Give me a call or send me an email if you have any questions at all about your personal situation.

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Chart: Fannie Mae 4.0% Mortgage Bond (Friday Jun 10, 2011)

The Mortgage Market Guide View…

Fun Facts – and Activities – for Father’s Day!
Father’s Day is this coming Sunday, June 19, 2011. To help mark the occasion, here are some fun facts and a list of activities that can help you give Dad the gift of family memories.
One in a Million?
According to the US Census Bureau, there are 70.1 million fathers across the US. Although they all share the experience of fatherhood, each dad is unique. That means, your dad isn’t just one in a million; he’s one in 70.1 million!
Want to learn more fun facts about this special holiday for dads, check out the US Census Bureau’s Father’s Day Facts page.
Simple, Special, and Inexpensive Activities for Dad
Go for a hike – If your dad enjoys nature and relaxing walks, plan a hike on Father’s Day. Whether you make it an easy stroll or a more challenging climb, a hike is a great way to spend some quality time away from the chaos of everyday life. Here are some hiking tips and packing ideas that can make the day as safe as it is fun.
Visit a museum or history center – Whether your dad enjoys art or history, you’re sure to find a museum or history center in your area that will fit his interests. Plan the special day as a surprise and be sure to allow plenty of time to let Dad set the pace, so he can take his time. The American Association of Museums offers an online directory of museums near you. Try it today to search by city, state, and even the type of museum you want to visit.
Go fish – Take Dad to his favorite fishing spot for the afternoon. Of course, if Dad’s not much of a fisherman, consider pulling out a deck of cards and playing a game of Go Fish with the younger children. Take a few minutes to read the rules to Go Fish, as well as find other game ideas.
Play ball – There are plenty of baseball fields and open parks where the family can gather for a game of baseball with Dad. Whether you play a more competitive game of fastball or softball with older children or Wiffle ball with youngsters, it’ll be a day you all remember. Here’s a fun site with the official Wiffle Ball rules.
Hand over the remote – Father’s Day isn’t always sunny and warm. But even if the weather doesn’t cooperate this year, you can still make the day special for Dad. Consider curling up on the couch with your dad for a couple hours of his favorite shows or movies. You can even plan ahead by renting some of his favorite old movies as a surprise.
Fill the frames – You don’t need to spend a lot of money to give Dad the perfect gift. If you have some old picture frames around the house that are sitting in a closet or have out-of-date photos in them, consider giving them a new look. An inexpensive can of paint and some new photos of the kids can go a long way. If the children are older, consider reprinting some old photos of the kids when they were younger. Or you could even take some before and after photos of the kids by retaking photos of them today in the same place and pose of an old photo. Then combine the old and new photos using a photo editing software program or simply place the photos side-by-side in a frame. It’s a gift any dad will be sure to cherish.
Watch home movies – Don’t just limit your movie watching to Dad’s favorite Hollywood films. Instead, spend some time watching some of those home movies that feature Dad and the kids – or even older home movies of Dad when he was a kid. If you don’t have many home movies, put together a slideshow of photos; it’s easy to do and you can even add music on your computer. Of course, if technology isn’t your thing, there’s no need to worry – grab the family photo albums and gather around Dad for a couple hours of laughing and sharing.
Don’t forget Dad’s favorite meal – Whether it’s breakfast in bed or a favorite dinner, make sure you dedicate at least one meal to Dad.
Happy Father’s Day to all the dads across the country – all 70.1 million of you. And may your special day be filled with memories as unique as each of you!

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Economic Calendar for the Week of June 13-17, 2011
Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
Economic Calendar for the Week of June 13 – June 17
Date ET Economic Report For Estimate Actual Prior Impact
Tue. June 14 08:30 Retail Sales May -0.7% 0.5% HIGH
Tue. June 14 08:30 Retail Sales ex-auto May 0.2% 0.6% HIGH
Tue. June 14 08:30 Core Producer Price Index (PPI) May 0.2% 0.3% Moderate
Tue. June 14 08:30 Producer Price Index (PPI) May 0.1% 0.8% Moderate
Wed. June 15 09:15 Capacity Utilization May 77.0% 76.9% Moderate
Wed. June 15 09:15 Industrial Production May 0.2% 0.0% Moderate
Wed. June 15 08:30 Empire State Index Jun 10.0 11.9 HIGH
Wed. June 15 08:30 Core Consumer Price Index (CPI) May 0.1% 0.2% HIGH
Wed. June 15 08:30 Consumer Price Index (CPI) May 0.1% 0.4% HIGH
Thu. June 16 08:30 Jobless Claims (Initial) 6/11 421K 427K Moderate
Thu. June 16 08:30 Housing Starts May 540K 523K Moderate
Thu. June 16 08:30 Building Permits May 548K 551K Moderate
Thu. June 16 10:00 Philadelphia Fed Index Jun 7.0 3.9 HIGH
Fri. June 17 10:00 Consumer Sentiment Index (UoM) Jun 73.5 74.3 Moderate
Fri. June 17 10:00 Index of Leading Econ Ind (LEI) May 0.4% -0.3% Low

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