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    ●                                                                Week of October 11, 2010
                                                                                                 cent spat of discouraging economic news. We also remain en-
 Keeping       Market Comment                                                                    couraged because of the trend toward localization, meaning Las
               Are we progressing, regressing or standing still? It's hard to                    Vegas, Phoenix, Miami, and other desultory burgs are no longer
up-to-date     tell, given the litany of often-contradictory economic news over                  capable of infesting the rest of the country with their dire out-
               the past few weeks. What's more, this week's releases offer                       looks.
on market      little in the way of elucidation.
fluctuations                                                                                     Mortgage rates are another story, adhering mostly to a national
               We were pleased to see that the pending home sales index for                      trend. That trend, as we all know, remains down. Indeed, this
allows you     August beat analyst expectations, rising 4 percent to 82.3 from                   past week most of the mortgage products shed at least a few
               July's 78.9 posting. When we dug a little deeper, we were fur-                    basis points on concerns the economic recovery has stalled and
 to bring      ther pleased to find faster-than-expected gains in those markets                  that the Federal Reserve will have to inject more money into the
               that popped the loudest – easterly sections of California, Ari-                   economy (euphemistically known as “quantitative easing”) by
  greater      zona, and Las Vegas – when the real estate bubble burst nearly                    purchasing more mortgage-backed securities.
               two years ago.
  value to
                                                                                                 More quantitative easing will likely occur after Friday's em-
   your        The obvious question is will the sales trend hold and will it be                  ployment report, which showed that the private sector added
               able to sustain the housing-price gains we've seen this year?                     only 64,000 jobs in September while the total workforce shrank
  clients.     We think so, though others disagree. According to real estate                     by 95,000 jobs (mostly due to the federal government letting go
               data provider Clear Capital, national home prices actually                        temporary census workers). Meanwhile, the unemployment rate
    ●          dropped 0.2 percent over the three months ending in September.                    held at 9.6 percent.
               Many market watchers believe this is only the beginning and
               that prices will continue to drop well into 2011.                                 In short, expect today's low mortgage rates to hold into the near
                                                                                                 future. But keep in mind, rate drops have been realized in sin-
               We remain encouraged, nonetheless, knowing that national                          gle-digit basis-point increments; increases, when they come,
               prices are 10 percent above their 2009 lows and continue to                       will likely be another story.
               make some headway despite the tax-credit expirations and re-

                   Economic             Release                      Consensus                                                      Analysis
                   Indicator         Date and Time                    Estimate

                Federal Reserve      Tues., Oct. 12,                                             Important. Fed watchers are expecting a downgrade in the eco-
                                                                         None                    nomic outlook
                FOMC Minutes           2:00 pm

                   Mortgage          Wed., Oct. 13,                                              Important. Purchase activity could slip after the new FHA FICO-
                                                                         None                    score requirements.
                  Applications        7:00 am, et

                    Producer         Thurs., Oct. 14, All Goods: 0.1%(Increase) Important. Higher energy and commodity prices are being offset
                   Price Index         8:30 am, et      Core: 0.1% (Increase)   by falling prices in other business sectors.

                   Consumer            Fri., Oct. 15,       All Goods: 0.1%(Increase) Important. Constrained pricing will help maintain a low interest-
                   Price Index          8:30 am, et           Core: 0.2% (Increase)   rate environment.

                  Retail Sales         Fri., Oct. 15,                    0.3%                    Important. Continued spending buttresses the argument that there
                  (September)           8:30 am, et                   (Increase)                 will be no double-dip recession.

               The Downside to Low Interest Rates                                                with their one-size-fits-all regimes – will continue to rule the
               Many mortgage brokers and bankers remain enthusiastic over                        roost until we achieve a more normalized interest-rate environ-
               the low (and possibly lower) mortgage-rate environment. We                        ment, where rates genuinely reflect market risk. The upside to a
               prefer to restrain our enthusiasm; low mortgage rates have long                   normalized market includes a greater variety of loan products
               ceased to be the stimulus they were earlier in the crisis. Actu-                  and greater latitude in underwriting standards, thus making for a
               ally, low rates are doing more harm than good these days.                         more diverse and accommodating market.

               The fact is that interest rates are artificially low and are hinder-              Rising interest rates would also put an end to the carry-trade
               ing private investment, which there is a sorry dearth of these                    game, where banks can simply make money borrowing at short-
               days. Freddie Mac and Fannie Mae continue to fill the void,                       term rates will simultaneously lending at higher rates to the US
               which means everyone must adhere to their inflexible under-                       Treasury. Once this game is curtailed, more lenders would turn
               writing standards.                                                                to underwriting riskier loans; thus creating a more sweeping and
                                                                                                 inclusive market. If today's market is in need of anything, it's
               Unfortunately, it appears that Freddie Mac and Fannie Mae –                       more sweep and more inclusiveness.

                                                                                                            This newsletter brought to you compliments of:
                                                                                                                              Picore Team
                                                                                                                              Michael Picore
                                                                                                                               Kristi Picore
               931 Grand Ave, Glenwood Springs, CO 81601                                                                      970-384-4486

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