Aloha Friday,

Here is my direct question for you? Is the economy getting better? Is the market getting stronger? Friday brought a government report that said the U.S. economy grew for the third straight quarter, although at a slightly lower rate than expected. Good news about economic growth can often drive bonds investors to turn to riskier assets like stocks, but on Friday, other news offset that sell-off effect.

What analysts are saying: "What's driving the markets right now is the tug-of-war between the growing federal investigations of Goldman Sachs, increasingly positive news on the economy, and the continuing saga of the Greek debt crisis," said Jonathan Lewis, principal of Samson Capital Advisors.

Did anyone think Europe would get out of this recession without feeling any pain? As history shows, the US (as the largest economic factor in the world) is the first to feel any effects of upward or downward turns in economic data. Other nations will then begin to feel the brunt of the same effect as our buying power is so strong. Greece, Portugal and Spain were all credit downgraded this week making U.S. bonds very attractive.

This week rates went down about an .125% but only after an upward tick on Tuesday. Overall the rates are staying low as investors continue to flock back to the safety of US Bonds.

On a fun facts note, the US government will sell its 27-percent stake in bailed-out financial giant Citigroup over the course of 2010. Citigroup was given $45 billion in taxpayer funds in late 2008 - $20 billion in loans and $25 billion in return for the government stake. Citigroup has already paid back the $20-billion loan. The Treasury in a statement said it would sell the Citigroup shares in 'an orderly and measured fashion' through the year, partly to maximize profits and partly to ensure markets remain stable. Bloomberg News has estimated the market value of the government's current Citigroup stake at $31.9 billion, which would represent a profit for taxpayers of $6.9 billion.

Please let me know if we can help in any way on financing this week as processing times are still great. Have a super weekend.

Here is some more information for the end of the week.

Fed Statement Little Changed

With a Fed meeting, Treasury auctions, and major economic data on this week's schedule, investors were watching closely for unfavorable news. In the end, there were no major surprises. Little changed in the Fed statement, auction demand was at average levels, and the economic data was generally close to expectations. The biggest influence on mortgage markets turned out to be turmoil in Greece, which caused investors to seek the relative safety of US bonds, and mortgage rates ended the week a little lower.

The economic troubles of Greece have been in the news frequently in recent weeks. Its ability to recover from significant budget deficits and to pay its debts has been questioned. The European Union (EU) and the International Monetary Fund (IMF) are working on a bailout package for Greece to allow enough time for the country to stabilize. Despite the coming assistance, though, the debt of Greece was further downgraded on Tuesday. In addition, investors grew more concerned that other smaller European countries will reveal similar problems. As a result, investors shifted funds to safer investments, including US Treasuries and mortgage-backed securities (MBS).

Prior to Wednesday's Fed meeting, it had been reported that support was growing among Fed officials to begin sales of mortgage-backed securities (MBS) from the Fed's portfolio. The Fed statement made no reference to MBS sales, however. As expected, the Fed made no change in the fed funds rate. The statement described the economy in slightly more positive terms. Otherwise, it was very similar to the prior statement. The Fed retained the "extended period" language regarding the fed funds rate. In short, nothing in the statement caused investors to alter their outlook for Fed policy.

When to Lock Your Rate

This is the most frequent question I am asked by borrowers. There are few basic pieces of information one must consider when deciding when to lock in their rate.

The first is to evaluate the economic climate at the time. Simply, are we in an upwardly rate environment, a declining rate environment, or are we in a neutral rate environment. Your mortgage professional should be able to assess the current market and most importantly provide you their reasoning for their market determination. No one can tell you for certainty where the bond market will be tomorrow. I always tell my clients that if I could, I would be lying on a beach somewhere being pampered while phoning in my bond trades. But, a true mortgage professional should be able to provide you the current market conditions and the general consensus of where rates are headed.

Next is to determine when you will need to close your loan, and how that will impact your decision to lock. If you are refinancing and are looking at a 30 day window, your decision to lock will be very different from someone who is buying a home from a developer, and the transaction will not close for 6 months. In this example, where the buyer would be considering an extended lock period, the most important factor is long term economic conditions and the cost of the extended lock versus the projected upswing in rates.

The last item to consider is if you should lock today or tomorrow. Rates change daily. Sometime in a volatile market, rates change 3 or more times in a day. If you are concerned about an eighth in rate and how that would impact your loan, consider this. On a $300,000 loan, a movement of 0.125 in rate would impact the monthly payment by $23.00. We in Hawaii love to gamble. After all, what’s $23. If you were to project the $23 over the life of your loan, it’s $,8,280. Are you prepared to place an $8,000 bet? When put in this perspective, most would not. In short, if the rate and terms seem actable to you, lock in your rate and be done with it.

Also Notable:

Q1 consumer spending increased at a 3.6% rate, the highest level since early 2007
The MBA weekly purchase activity index rose to the highest level since October
One Fed official again dissented on the vote to hold the fed funds rate steady
Fed Chief Bernanke strongly urged lawmakers to reduce the budget deficit
 

Average 30 yr fixed rate:

Last week:
+0.05%


This week:
-0.05%

 

Stocks (weekly):

Dow:
11,150
-50

NASDAQ:
2,500
-25
 

Week Ahead

The biggest economic event next week will be the important Employment report on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before the employment data, Personal Income and the ISM manufacturing index will be released on Monday. Pending Home Sales, a leading indicator for the housing market, will come out on Tuesday. ISM Services will be released on Wednesday. Productivity, Construction Spending and Factory Orders will round out the schedule.

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