U.S. Treasury bonds, however, benefitted, with the 10-year yield, which moves inversely to price, closing at 2.01%.

Tuesday’s news was difficult to decipher. November retail sales missed expectations by a wide margin, but stocks rose. Sales were up 0.2%, when analysts predicted a 0.4% to 0.6% increase. Nevertheless, stocks jumped at opening and bond prices fell. An hour later stocks declined after German Chancellor Merkel axed a plan to increase Europe’s bailout funds. Separately, business inventories rose 0.8% in October, up substantially from the previous 0.0% outcome.

Stocks plunged after the Federal Open Market Committee meeting due to disappointment that no changes to the Fed’s stimulus policy were announced. In addition, the Fed warned that “strains in the financial markets continue to pose significant downside risks to the economic outlook.” As expected, no change was made to the prime rate, which should hold through mid-2013. The Committee also believes inflation will settle at or below acceptable levels. In addition, the 10-year note saw strong demand. It closed at 1.96%.

On Wednesday the euro fell to its key level of $1.30 — the lowest since mid-January. That in turn made the dollar stronger and raised prices of commodities. It also unnerved the U.S. markets, due to Europe’s financial problems and tight credit in the European banks. In addition, Fed Chairman Bernanke told Republican senators that economic problems in Europe would be detrimental to the U.S.

The only economic news was of little consequence. The import price index rose 0.7%, while the export index was up 0.5%. Stocks posted their third consecutive day of losses, but worried investors bought bonds. The 10-year yield closed at 1.90%.

Thursday could have been a terrible day for bonds, as four of the five economic indicators were better than expected. But investors, anxious about the lack of progress in solving Europe’s debt problems, kept gobbling up bonds — though at a slower pace. The International Money Fund has plans to ask countries outside the eurozone to contribute to the debt fund that will help trouble eurozone nations. But several of those countries have already said they won’t do it. The 10-year note yield tumbled to 1.86%, its lowest level since October.

First-time jobless claims for the week ended Dec. 3 fell to their lowest level since May 2008. There were 366,000 claims filed, down from 385,000 the previous week. Two regional manufacturing indices for December were also positive. The Philly Fed index rose to 10.3 from 3.6 in November, and the NY Empire State index climbed to 9.53 from 0.61. Like jobs and housing, manufacturing has been slow to recover.

The producer price index, which monitors wholesale prices, rose 0.3% from -0.3% in November, which is quite a jump. But the core rate, which eliminates volatile food and energy prices and is the one the Fed watches, rose 0.1% from the previous 0.0% reading.

Finally, industrial production in November dropped to -0.2% from 0.7% in October. Analysts, however, were expecting low numbers, so the markets were prepared. After digesting the economic reports, the 10-year yield closed at 1.91%.

Good news on the inflation front sent prices of stocks and bonds up on Friday — an unusual occurrence. The consumer price index, which tracks inflation at the retail level, saw little change in November. Prices were unchanged from October — always good news. The core rate, which excludes volatile food and energy costs, rose an acceptable 0.2% versus a 0.1% increase the previous month. Bond traders are especially wary of inflation, as it robs longer-term fixed-rate investments of their value.

Stocks took a dive around mid-session, as exhausted traders headed home. Clouds of doubt loom over Europe and its ability to work out of its financial troubles, leaving U.S. bonds and their low yields one of the few safe places to invest. The 10-year note closed at 1.85%.

News regarding mortgage applications has been volatile lately. According to the Mortgage Bankers Association, refinances rose 9.3% for the week ended Dec. 9. Purchase apps, however, fell 8.2%.

It’s the week leading up to Christmas, but that doesn’t affect the number of economic indicators on tap. There is a least one report each day, and some are market movers. Monday’s homebuilders’ confidence index for December is not one of them, but in November confidence hit a 17-month high of 20.

November housing starts will be released Tuesday, with a slight increase expected. Analysts believe starts will rise to an annual rate of 632,000 units from 628,000. Estimates on building permits, which are included in the report, are not available.

Economists believe November was a good month for existing home sales. The report, due Wednesday, should show sales rising to an annual rate of 5.10 million units. This would be a substantial increase from October’s rate of 4.97 million units. Depending on the news from Europe, this increase could weigh on Treasuries, pushing yields up.

Thursday and Friday are loaded with reports prior to the three-day Christmas break. First-time unemployment claims for the week ended Dec.17 are due, and they have been volatile. A big move up or down will likely affect Treasuries.

On the other hand, the final 3rdquarter GDP reading is expected to edge up to 2.1% from the revised 2.0% reading. A move like that would not likely influence trading.

The preliminary Thomson Reuters/University of Michigan reading on consumer sentiment, released two weeks ago, jumped to 67.7 — its highest level since June. If the December final tops that number, Treasury prices would likely fall.

Leading economic indicators for November are also slated, and are expected to show a 0.3% increase — down from the previous 0.9% jump. This indicator attempts to look at the nation’s economic growth over the next six to nine months. The Federal Housing Finance Agency releases its housing price index for September. This is not influential due to dated data. In August prices fell 0.1%.

Three reports close out Friday, beginning with personal income and spending. November income is forecast to rise 0.2%, which is down from the previous 0.4% increase. Spending, however, should be up 0.3%, versus 0.1% in October. More spending boosts the economy, but a drop in income hurts.

The final report estimates are very positive, which could send Treasury yields up if they prove to be correct. Orders for durable goods, items meant to last more than three years, are forecast to have increased 4.6% in November. The previous month they fell 0.5%. And new home sales in November should jump to an annual rate of 313,000 units. That’s up from 307,000 in October.

This week’s report will reveal what most of us already know — plunging mortgage rates created a flood of mortgage activity.

If you’re among the many Americans taking advantage of today’s low rates, don’t forget that when your rate was “locked”, it was locked with an expiration date.  

Most likely, that rate lock is for 30 days. 

And, while 30 days may seem like a long time, it’s not.  Especially because rate locks made prior to Thanksgiving lose a combined 14 days to weekends and holidays, plus another 4 days to the Right To Cancel clause.

A 30-day rate lock, therefore, yields just 12 “working” days in which to underwrite and approve the mortgage and that’s not a lot of time at all.

Making matters more difficult, many lenders are ill-equipped for boom.

Not only has staff been pared down in expectation of a slowing economy, but December a prime vacationing month, too.  Lenders are short-staffed at a very inopportune time.

So, for active refinancing homeowners, the best way to preserve a 30-day rate lock is to be as responsive as possible to the process:

• If paystubs are requested, return them on the same day
• If a home appraisal is needed, schedule the appraisal immediately
• If a closing date is scheduled, don’t postpone it by a day

As mortgage rates hang near 3-year lows, the number of refinancing homeowners nationwide will grow, further taxing lenders and their staff.  If you already have a loan in process, be pro-active about it to prevent your 30-day rate lock from expiring.

Despite soft housing numbers and evidence of a slowing economy, mortgage rate shoppers found reason to celebrate:

• Citigroup was “rescued”
• Wall Street liked the new economic team
• The government pledged $600 billion to buy investment-grade mortgage bonds

These 3 elements helped drive mortgage rates to their lowest levels since January 2008 — in some cases shaving a full percentage point off the offered rate.

Homeowners responded to the dip and refinance activity reached “a frenzy“.  As evidence, at least one national mortgage bank reported more loans were locked on Tuesday, November 25 than for the first 24 days of the month combined.  Anecdotally, other lenders saw similar action.

However, low rates rarely stick around. 

The last time that rates like they did last week, markets recovered within a week and rates returned to “normal”.  This week provides ample chance for that to happen again.

Throughout the early part of the week, 5 members of the Fed will make public appearances, including Fed Chairman Ben Bernanke.  With the Fed’s next meeting scheduled for December 15, markets will be looking for clues about how the Fed may change the Fed Funds Rate. 

When the Fed Funds Rate falls, mortgage rates tend to rise on the news.

Then, on Thursday, retailers start announcing their “same store” sales figures for November.  This will clue us in to the true health of the economy because consumer spending accounts for two-thirds of it.  If same-store sales are dramatically lower, expect calls for a large Fed Funds Rate cut.

And lastly, Friday brings us the jobs report.  As terrible as the employment reports have been this year, it will take an especially higher number of jobs lost in November, or an exceedingly high Unemployment Rate to have much of an impact on mortgage rates.

This month, weak jobs data should be harmful to mortgage rates because more out-of-work Americans may lead to more mortgage defaults nationwide, plus additional Fed Funds Rate cuts.

(Image courtesy: The Wall Street Journal Online)

Dubbed “Black Friday” in reference to red ink representing loss and black ink representing gain, today’s start to the Holiday Shopping season is believed to be the day that retailer balance sheets finally cross over to profitability.

But the accounting connotation of the phrase “Black Friday” wasn’t its original usage – it’s a media-coined term. 

When the phrase was first used in Philadelphia in 1975, it was in reference to the day after Thanksgiving being the busiest shopping and traffic day of the year.

There’s other Black Friday trivia out there, too:

Did you know? Black Friday is neither the largest, nor the most profitable, shopping day of the year.  Contrary to popular wisdom, it’s the 5th biggest, not the first.  The two weekends before Christmas are usually the “biggest” series of days.

Did you know? In an attempt to spur the economy in 1939, President Franklin D. Roosevelt proposed to move Thanksgiving ahead by 7 days.  7 more days of shopping, he thought, would help retailers and help the economy.  Eventually, the idea dubbed “Franksgiving” failed.

Did you know? To protect competitors from price matching “deals”, some retailers copyright their Black Friday advertising.  Others won’t print prices at all.

Did you know? Last year, 14 percent of Black Friday shoppers had made a purchase prior to 4:00 A.M. with an average ticket of $347.

Black Friday is of special significance this year because consumer spending accounts for two-thirds of the U.S. economy.  If Americans are shopping in full force, expect economic optimism and a mild rebound in the stock market.  Unfortunately for home buyers, this should also lead mortgage rates higher.

By contrast, if sales figures are weak, expect talk of recession to grow.

Sources
Black Friday (Shopping)
Wikipedia
http://en.wikipedia.org/wiki/Black_Friday_%28shopping%29

Geek Trivia: Early bird special
Tech Republic
Jay Garmon, Nov 22, 2005
http://articles.techrepublic.com.com/5100-10878_11-5958978.html

(Image courtesy: Give Congress Back)

So, Tuesday, when the government unexpectedly announced a $500 billion budget for buying mortgage debt from Fannie Mae and Freddie Mac, the demand side of the mortgage market ballooned. 

The surprise demand helped push mortgage rates to their lowest levels since January 22, 2008.  30-year fixed mortgage rates were down by as much as three-quarters of a percent Tuesday before retreating higher.

Not coincidentally, January 22, 2008, was the date of another unexpected government intervention – a surprise 0.750 percent Fed Funds Rate cut that was meant to spur the economy forward. 

Interventions like these are a big reason why predicting mortgage rates is tough business — just when you discover the market’s balance point, an outside force shifts that balance, creating tremendous amounts of uncertainty about the future.

Uncertainty on Wall Street is typically bad for mortgage rate shoppers because it leads to high levels of volatility.  Look at the trading pattern from Market Open to Market Close yesterday:

• 8:30 AM ET: Markets open with rates falling on the news
• 10:00 AM ET : Rates fall more on momentum trading
• 12:00 PM ET : Rates level at their lowest levels of the day
• 2:00 PM ET : Rates rise as profit-taking begins
• 3:30 PM ET : Rates rise more on momentum trading
• 4:00 PM ET : Markets close with rates down by half

Again, not coincidentally, this is the exact trading pattern from January 22, 2008.  On that day, rates were at their lowest about 3 hours into trading, and then consistently rose all the way into Market Close — just like we saw Tuesday.

Unfortunately, in the 30 days that followed January 22, mortgage rates rose from a 3-year low to a 3-year high.  And, it’s not to say that the same thing will happen from now through December 25, but trading patterns have a tendency to repeat themselves over time.

Mortgage markets seek balance and when there’s a dramatic shift, chaos can creates opportunity. Tuesday’s $500 billion pledge added new demand and shocked the mortgage market system.  Before long, it recovered to find balance.

As of today, mortgage rates are still hovering near their 3-year lows so if you haven’t spoken to your loan officer about a refinance, consider calling today.

The number of existing homes sold each month is tracked by the National Association of REALTORS.  The report is often used as a gauge for the health of the real estate market nationwide.

In October, nearly 5 million existing homes sold across the U.S.  This figure represents a slight drop from September’s reading, and a equally slight drop from the October 2007 data.

But, October’s Existing Home Sales figures marked the 14th straight month in which Existing Home Sales straddled 5-million units.  This is a remarkable statistic because 14 months of anything is a pattern, not a blip.  Despite what the news tells us, Americans are buying and selling real estate at a somewhat steady clip.

As we head into the Holiday Season, buyer activity should slow, reducing demand for homes.  At the same time, however, widespread foreclosure moratoriums should reduce the number of homes available to buy.  These forces should counter-act to help keep the market (and prices) in balance.

(Image courtesy: USA Today)

Mortgage rates closed out the week slightly lower, but the week wasn’t without fireworks.

1. Calls of deflation grew louder
2. The automakers left Washington without a bailout
3. Citigroup’s stock price fell to the equivalent of its ATM fee

Separately, each of these elements would have created confusion on Wall Street.  Together, they created near chaos.  Stocks traded at a pace last week that has never been equaled.

As a result, mortgage rates were volatile, too.

Over the 5-day workweek, multiple mortgage lenders issued 11 distinct rate sheets, meaning that consumer mortgage rates changed every 3 hours, 38 minutes on average last week.

This is why home buyers should rate shop  quickly.  Wait too long and the mortgage rate is gone.  And this week doesn’t figure to be any less volatile.

To start, it’s a holiday-shortened week.  Fewer traders will be working as the week moves forward, making the Price Discovery process more difficult.  With fewer active buyers and sellers, wild price swings are likely and mortgage rates should feel the impact.

Next, markets will debate the Citigroup Bailout, wondering whether this will (finally) mark the market bottom.  It’s a conversation about which Wall Street never tires and with each bit of optimism, money should flow into stocks to the detriment of mortgage bonds and mortgage rates.

And lastly, there are 9 economic releases crammed into Monday, Tuesday, and Wednesday of this week, including two housing reports and an inflationary gauge behind which the Fed puts a lot of credence. 

Signs of stabilization should buoy both stock markets and mortgage rates — Wall Street is craving balance of some sort to carry it into the New Year.

There are no Fed speakers scheduled for this week so watch for data and market sentiment to lead the markets.  For rate shoppers, this means more rate sheets.

(Image courtesy: The Wall Street Journal)

Deflation is a recurring cycle in which the prices of goods and services fall. Isolated to one industry or sector, falling prices is the natural result of competition. 

For example, when DVD players were first introduced, they were tagged at $800. 

Today, you can buy them for less than $20. 

Across many industries, however, and happening at the same time, falling prices can shut down the economy.  Rather than buy things on the cheap, people stop buying anything at all.  And why would they?  The same items will cost less tomorrow.

And this is the problem with deflation — it halts consumer spending and consumer spending makes up two-thirds of the U.S. economy.  When it stops, the economic result is dwindling corporate revenues which leads to:

1. Layoffs of the workforce, which leads to…
2. Less consumer spending, which leads to…
3. Dwindling corporate revenues, which leads to…

And the spiral continues. 

Deflation can be much more insidious that its expansionary counterpart — inflation.  Inflation is when the prices generally rise over time and it’s an economic condition through which governments can comfortably navigate.  Deflation, on the other hand, is more rare and, therefore, fewer practical control measures exist.

Whether the U.S. economy will slip into deflation is a matter of debate. 

The Fed has cut the Fed Funds Rate to promote economic growth and those changes can take up to 12 months to work their way through the economy.  Deflationary pressures we’re seeing today, in other words, may have already been addressed and corrected by Ben Bernanke’s 10 rate cuts in the last 14 months.

Until the market figures it out, though, expect that each mention of deflation will hurt the stock market and help the bond market — including the mortgage-backed variety.  This should help lower mortgage rates and make homes more affordable.

(Image courtesy: The Wall Street Journal)