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Mortgage Market Weekly Update

By Judi Desiderio, Tuesday, August 03, 2010
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Eve Robin Jarrett
Senior Mortgage Consultant
Manhattan Mortgage
Office: 631-324-1555 x 25
Blackberry: 631-697-3366
e-Fax: 631-514-3654
Email: EJarrett(at)manhattanmortgage(dotted)com

For the week of Aug 02, 2010 // Vol. 8, Issue 31
In This Issue

Last Week in Review: Stocks and Bonds danced around each other this week, reacting to a mix of strong and weak economic data. Find out what this means for home loan rates.

Forecast for the Week: A busy news week ahead, including the heavy hitting Jobs Report, waiting in the wings until Friday morning.

View: Learning to use money wisely can start at any age, especially with these seven tips for teaching kids financial responsibility.

Last Week in Review

THEY SAY IT TAKES TWO TO TANGO… And the relationship we see in the markets between Stocks and Bonds is a dance of its own, as one often improves at the expense of the other… while one kicks higher, the other often dips lower. But why… and how does this impact home loan rates? Here’s what you need to know.

Weak economic news normally causes money to flow out of Stocks and into Bonds, because investors see Bonds as a safer haven when the economy appears weak. An increased demand for Bonds means that Bond prices move higher, as with any item when there is heavy demand for it. And when Bond prices move higher, it means that Bond yields – and consequently home loan rates – move lower. So any movement of money into Bonds typically helps home loan rates improve. Conversely, strong economic news normally has the opposite result. When the economy appears strong, investors move their money to Stocks in the hopes of taking advantage of any gains… and often this money is being pulled back out of Bonds. In turn, this often causes Bonds and home loan rates to worsen as a result.

Last week, we saw this dance in several instances. Through the week, Stocks danced higher as strong earnings reports continued, with more than three-quarters of the S&P 500 companies who’ve reported second quarter earning beating expectations. In addition, conditions in Europe look to be improving… and this is quite the turnaround from just a few weeks ago when things looked to be horrible. The bank stress tests – whether they are to be believed or not – appear to have helped conditions overall, and brought some strength to the Euro and also to our Stocks, which improved on the news.

This is important to note, as part of the big rally we have seen in the Bond market and the big improvement in home loan rates came from the rush of funds from Europe to the US, and in particular to our Bond market, as protection from a precipitously declining Euro. If conditions in Europe continue to improve, money might just flow back over to Europe, and Bonds and therefore home loan rates could worsen.

However, not all of our economic news has been positive lately, and some of this weaker economic date helped Bonds and home loan rates maintain their historic levels last week. Durable Goods Orders, manufactured goods lasting at least three years, fell 1.0% for June. This was the biggest decline in nearly a year, signaling that economic growth was stagnant in the second quarter. In addition, the Advanced or first reading for 2nd Quarter GDP showed the US economy slowed to a 2.4% annual growth rate, which represents the lowest number in a year. These readings show that consumers and businesses remain cautious and reluctant to spend money. And that’s understandable… concerns remain about the labor market, the housing market, and the economy overall. All in all, the news from last week helped Bonds and home loan rates improve, and they ended the week slightly improved from where they began.

If you or anyone you know would like to learn more about taking advantage of historically low home loan rates, please don’t hesitate to call or email. Or forward this newsletter on to anyone you think may benefit, and I’d be happy to talk to them free of charge.


Forecast for the Week

This week’s news could cause a little more twist and shout between Stocks and Bonds, beginning with Tuesday’s Personal Income and Personal Spending Reports, which will give us a look at the Core Personal Consumption Expenditure (PCE) Index. PCE is the Fed’s favorite gauge of inflation, and they will most certainly be watching this number closely in advance of their August 10 meeting of the Federal Open Market Committee (FOMC).

And there will be plenty of labor market news ahead this week. After Thursday’s weekly Initial and Continuing Jobless Claims Report, Friday will bring the Labor Department’s Official Jobs Report for July. Last month’s report showed that 125,000 jobs were lost during the month of June, and remember, we need to create 125,000 to 150,000 jobs each month – via both private and government jobs – just to keep up with the pace of population growth. With 3.25M people claiming EUC (Emergency Unemployment Compensation) benefits according to last week’s Jobless Claims Report, it doesn’t appear that this week’s official Jobs Report for July will paint a rosy picture.

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 improved above important resistance, allowing home loan rates to continue to improve. I’ll be watching to see if this continues.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday, July 30, 2010)

The Mortgage Market Guide View…

7 Ways to Teach Financial Responsibility to Children

If the current economic climate has taught us anything, it’s that financial education and responsibility are critical in today’s fast-paced, wired world. All too often, however, children grow up immune to the financial world around them. As a result, they’re often ill equipped to manage their own finances when they become adults and leave home.

With the economy in the news almost daily, now’s a perfect time to start educating your children about how to manage money more responsibly. The tips below can help you get started.

1. Pay an Allowance

If your children don’t have money of their own, it’s hard for them to really grasp the value of it. So if you don’t pay your children allowance, consider starting. You don’t need to pay a lot – a little goes a long way. The most important thing is that your children learn the value of completing even small chores around the house to earn their own money.

2. Make a Plan and Set Guidelines

Before you actually start paying the allowance, sit down with your children and set some expectations. Discuss the specific chores and timelines for completing those chores, as well as the amount of money they’ll earn for each chore and when they’ll be paid. This helps instill a strong work ethic in children as well as drive home the message that money is earned, not given.

3. Save for the Future

As part of your financial discussion, consider implementing a savings rule for your children. For example, make a rule to save half or one-third of their allowance. You can go with them to the bank to establish a savings account in their name and then take them to make their deposits. Or, if your children are still young, you can decorate a jar to use as a special savings bank at home.

4. Educate on Interest

Once a month, sit down with your kids and count how much they have deposited, how much interest they have earned, and how much they have as a result. Compare the amounts each month, so your children can see the benefits not only of saving, but also the benefits of compounding interest.

5. Take Your Children Shopping

Take your children grocery shopping with you. As you go down your shopping list, have your children help you compare the prices of the different brands, sales, and quantities per package. You can also have you children try to keep a running tally and make a guess of what the total cost will be.

6. Set Them Free to Shop

Once your children have a sense of money matters, you may want to take the lesson up a notch. For instance, when your children need new school clothes, you try giving them the money and putting them in charge of what to buy. Then, as they shop, help them compare the prices and number of items they can purchase within their budget. You could even purchase a gift card with a specific dollar value on it. That will help your children not only learn about the value of a dollar and making smart purchases, but it’ll also introduce them to the credit card system, in which money may not seem real because it’s unseen. In today’s electronic financial world, this lesson will become more and more important as your children get older.

7. Teach by Example

Remember, children are always watching. So if you educate them on saving for purchases and budgeting but make rash decisions on big-ticket items yourself, you may find them learning a different lesson than you intend. So make sure you follow your own rules when it comes to spending, saving, and fiscal responsibility.

At times your children may beg for an exception. But by being consistent, your children will be much better prepared to deal with the real financial world that they’ll face when they grow up.


Economic Calendar for the Week of August 2-6, 2010

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 August 02 – August 06
Date ET Economic Report For Estimate Actual Prior Impact
Mon. August 02 10:00 ISM Index Jul 54.2 56.2 HIGH
Tue. August 03 08:30 Personal Income Jun 0.1% 0.4% Moderate
Tue. August 03 08:30 Personal Spending Jun 0.0% 0.2% Moderate
Tue. August 03 08:30 Personal Consumption Expenditures and Core PCE Jun 0.1% 0.2% HIGH
Tue. August 03 08:30 Personal Consumption Expenditures and Core PCE YOY NA 1.3% HIGH
Wed. August 04 10:15 Crude Inventories 7/31 NA 7.31M Moderate
Wed. August 04 10:00 ISM Services Index Jul 53.0 53.8 Moderate
Wed. August 04 08:15 ADP National Employment Report Jul 25K 13K HIGH
Thu. August 05 08:30 Jobless Claims (Initial) 7/31 455K 457K Moderate
Fri. August 06 08:30 Non-farm Payrolls Jul -87K -125K HIGH
Fri. August 06 08:30 Unemployment Rate Jul 9.6% 9.5% HIGH
Fri. August 06 08:30 Hourly Earnings Jul 0.1% -0.1% HIGH
Fri. August 06 08:30 Average Work Week Jul 34.1 34.1 HIGH

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