Mortgage rate drops; will it stay low?

Freddie Mac said the rate for 30-year fixed mortgage dropped 0.21% to an average 5.38% for the week ending June 18. Mortgage rates have been on the rise in the last few weeks, and had reached their highest since last November in the previous week. Mortgage applications dropped as the rates increased, and analysts were concerned if the rise in rates will kill housing recovery. "Concerns about eventual inflation drove bond yields and mortgage rates higher in recent weeks," said Greg McBride, analyst at Bankrate.com. "That has been tempered by the reality of continued weakness in the economy." The drop in rates comes as a relief to the industry. McBride believes that the rate will stay range-bound until the economy recovers and the borrowing rate will not be an impediment to home buyers. The Federal Reserve plans to buy up to $1.25 trillion of mortgage-backed securities this year in order to keep mortgage rates low. "Make no mistake, these rates are low and they're going to stay
low," said McBride.

Inflation not yet a threat to economic recovery

The Consumer Price Index (CPI), which measures inflation, rose 0.1% in May from April, according to the Labor Department. The small increase was on account of higher gasoline prices. On a year-over-year basis in May, the CPI declined 1.3%, the largest decline since 1950. So far, the movement of the CPI has not supported the view that the government spending for fiscal stimulus is inflationary. "There is no sign that there has been widespread inflation because of the Fed's quantitative easing regime. In fact, long-term inflation expectations haven't budged and the Fed is still ahead of curve on inflation," said John Canally, an economist at LPL Financial. Yields on treasury securities have been rising in the recent past and analysts have said it is an indication of the market pricing potential inflation. Are analysts' concerns regarding inflation needless? "We could have an inflation problem going forward, but it's going to have to wait until we get a resuscitation of the bank ing system," said Bianco Research's Howard Simons. Steven Ricchiuto, chief economist at Mizuho Securities, says, "Bond market participants should be more concerned with the risks of deflation than the acceleration in inflation." Deflation can be deadly, given the negative impact it can have on the economy. The Federal Reserve has a lot to worry about.

Will reforms hurt banks' profitability?

President Barack Obama unveiled financial reforms this week with the objective of strengthening regulatory authorities and preventing another credit crisis. The reforms call for greater capital restrictions and increased supervision on investment vehicles, leading to reduced leverage and risk in the banking system. Analysts are concerned that the proposed reforms may impact profitability and competitiveness of banks. "These regulations are so sweeping, so comprehensive and so expensive there's no question about the fact that they will lower the profitability of the industry," says Richard Bove, banking analyst with Rochdale Securities. "As part of these regulations there's a demand to increase capital almost consistently, which lowers the leverage of the bank and lowers its potential profitability." Standard & Poor's, a credit rating agency, has cut its ratings for 18 banks since it expects volatility to remain in the financial sector and the industry to face tighter regulato ry supervision. Some analysts say that the government is attempting to increase its control over the entire economy. "These regulations strike me as a floor not a ceiling," said Dave Lutz, managing director of trading at Stifel Nicolaus. "They're going to continue to over-regulate as they see fit and branching out from banks to everybody that has systemic presence in the marketplace."

Venture capitalists want exemption from new regulations

The Obama administration proposes to include the venture capital industry in its financial overhaul plan. The plan requires hedge funds and venture capital funds to register with the Securities and Exchange Commission, and make certain disclosures and become subject to inspections. The venture capital industry believes that equating it with hedge funds is not correct, and they are not part of the problem which led to the current crisis. "Hedge funds may be different, because they short sell and time the market," said Robert Stefanowski, Chairman of 3i Group PLC's North America unit. "But private equity focuses on more long-term investment."The National Venture Capital Association (NVCA), the industry association of venture capitalists, says the industry is "relatively inconsequential" in the financial industry, and does not contribute to systemic risks which the reforms are supposed to tackle. "We believe that the entrepreneurial risk associated with the venture capital indus try is not relevant to the systemic risks which the Administration is hoping to mitigate with this reform," said Jennifer Connell Dowling, vice president at NVCA.

Never too big to fail

In the current economic downturn, there is no real comfort in size. Bankruptcy of large U.S. companies has been rising in the recent months. In the last 4 weeks, 8 companies with assets of more than $1 billion have filed for bankruptcy. In the previous 4 weeks, there were 5 bankruptcies of large companies. "Corporate revenue is down in the United States and when topline revenue is down, there's less money to spread through expenses," said Brian Hamilton, co-founder and chief executive officer of Sageworks, a financial information company. Hamilton expects to see more bankruptcies, particularly in the auto and real estate sectors, in days to come. According to Bankruptcydata.com, a provider of bankruptcy data, over 20 public companies with asset size of over $2 billion each have gone bankrupt this year so far. The 2 largest bankruptcies this year are General Motors and Chrysler with combined assets of over $130 billion.

Now on to our real estate investor education section...

Short Sales & Number Superstitions

Are you superstitious? Ever buy a home - or refuse to buy - based upon some "lucky" number or bad omen? Even if you aren't, chances are others might be so take the time to review these numerical oddities to understand the mindset behind superstition and how it can impact your short sales without even knowing it! Remember, nearly 80 percent of Americans would are mildly superstitious.

The Number 3...for many cultures like Russia, the number three is considered "lucky". It represents holiness in the form of a trinity as well as wholeness.

The Number 4...Nokia and other Asian based companies avoid using the number for or naming products with any association for four since it is considered very unlucky. The word "four" actually sounds like "death" in Chinese, Japanese and Korean. Avoid this number if trying to sell in heavily Asiatic areas.

The Number 5...Five is a fortunate number within the Islamic faith since it represents the five tenants or Pillars of Islam. Followers pray five times a day and there are five major prophets as well as five types of law.

The Number 7...Lucky number 7 is considered to have magic powers - at least that 's the way the story goes if you were of Irish Ancestry. Judeo-Christian faiths as well as others consider the number 7 a sign of perfection.

The Number 13...Friday the 13th and other films have made millions playing off the fear of the 13th. Originating with ancient Romans that believed the 13th was a sign of destruction, Christians carried forward the trend to the modern day.

The Number 666....Perhaps no number has a more negative connotation in Western society than 666. Often termed the "mark of the beast" this number was mentioned in the book of Revelation (New Testament) as associated with the end of the world and a time of great suffering. However, 666 is considered one of the luckiest numbers in China.

The Number 888...Originating as a sign of Jesus among the ancient Greeks, 888 is still considered a lucky number in many parts of the middle east as well as China.

The Number 328...When spoken in the Chinese dialect, this sounds a lot like 'business will prosper" and is associated with success as well as good fortune.
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