Events This Week:

Retail Sales Rose

Inflation Steady

Sentiment Higher

Manufacturing Mixed

________________________________

Events Next Week:

Mon 6/15
Empire State

Tues 6/16
PPI
Industrial Prod.
Housing Starts

Wed 6/17
CPI

Thur 6/18
Philly Fed

Strong Demand for Treasury Auctions

After rising significantly over the last couple of weeks, mortgage rates
moved higher again this week, but at a much slower pace. Strong demand
for this week's large Treasury auctions helped keep mortgage rates
relatively stable. At current yields, both foreign and domestic
investors showed above average interest in adding bonds to their
portfolios.

Behind the recent rise in mortgage rates has been an improved economic
outlook and concerns about the enormous supply of new debt needed to pay
for government programs. This leaves the Fed in a difficult position.
Fed officials would like to keep mortgage rates low to lift the economy.
To accomplish this, however, the Fed would have to significantly
increase its purchases of mortgage-backed securities (MBS), requiring it
to issue even more debt and adding to inflation concerns.

Most analysts believe that the Fed is unlikely to expand its MBS
purchase program. At the June 24th meeting, they instead expect the Fed
to discuss an eventual exit strategy for the program, which might
include stretching out their time frame for purchasing MBS. Reducing
the weekly purchases would allow the Fed to gradually scale back its
involvement in the market. The MBS purchase program has helped bring
mortgage rates down since it was announced in November, but the Fed
cannot continue to intervene in MBS markets indefinitely. Slowly
reducing their MBS purchases may be the best way to minimize the impact
on the market as they make their exit.

Psychology Of Rate Trends

After spending almost 15 years in the mortgage industry, I have
witnessed the many ups and downs within rate cycles. The chart below
shows the average rate for 30-Year and 15-Year fixed mortgage, along
with the 1-Year ARM. Many people in the process of buying their first
home or those that purchased in the past 5 years have no real historical
perspective on rates. With the recent rise in mortgage rates from their
bottom in the mid 4% range, many consumers now feel that rates are “too
high” to enter into the purchase market. We as consumers always
remember the “sale” price and use that as a basis of value, versus
looking at research to see what historically something has sold for. If
we are unable to get the product for the lowest price ever offered, we
feel ripped off. If we can no longer get the low, we feel we missed the
boat. That is human nature.

Now that mortgage rates have risen over 1% from the lows of the past few
months, it is important for those thinking of purchasing a new home to
not feel that they missed the boat with rates in the 5% range. When
looking at the above chart, many might not remember 30-Year Fixed
mortgages above 9%. In fact, the historical average for 30-Year Fixed
mortgages for the past 20 years is above 7%.

In October 2000, if I could offer an 8% 30-Year Fixed mortgage, I was a
hero. From 2000 to 2002 the 6% 30-Year Fixed was non-existent. From
2002 till the end of 2008 the 30-Year Fixed only touched the 5% mark
twice, and for only brief periods of time. In 20 years of data, the 4%
mortgage was available for 4 of those 240 months. Those 4 months being
the first 4 months of 2009.

In terms of historical averages, a 6% 30-Year Fixed Mortgage is a great
deal. If you have a fixed rate below 6% give yourself a pat on the
back. If you or someone is thinking of or starting the home purchase
process, don’t let the current rates in the mid 5% range stop you from
proceeding. There is an index called the “Affordability Index” which
measures buying ability based on home prices and interest rates. That
index is now at its highest level for affordability. That is based on a
huge drop in home prices and yes, still historically low rates. If you
or someone you know is contemplating purchasing a home, now is a great
time. Don’t miss the boat by waiting for the deal that may never come
your way.

Also Notable:

* May Retail Sales showed small gains from April
* The Fed's Lacker expects a "bottoming-out process" in housing
later this year
* Oil prices reached $73 per barrel, the highest level of the year
* The Fed purchased $23 billion in agency MBS during the week
ending 6/10

DAILY RATES FROM HAWAII’S TOP LENDERS:

Above rates are the Monday-Friday daily base rates. Add-ons for low
credit scores, high LTV, cash-out, or investment properties are then
added to that rate. Borrowers can also “buy down” these rates by paying
additional points.
Each color on the graph represents a different lender.

Average 30 yr fixed rate:

Last week:

+0.15%

This week:

+0.05%

Stocks (weekly):

Dow:

8,750

-50

NASDAQ:

1,850

+50

Week Ahead

The most significant economic data next week will be the monthly
inflation reports. The Producer Price Index (PPI) focuses on the
increase in prices of "intermediate" goods used by companies to produce
finished products and will come out on Tuesday. The Consumer Price Index
(CPI), the most closely watched monthly inflation report, will come out
on Wednesday. CPI looks at the price change for those finished goods
which are sold to consumers. In addition, Industrial Production and
Housing Starts will be released on Tuesday. The Empire State and
Philadelphia Fed regional manufacturing indexes will round out the
schedule. 
 

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