The Weekly Rap! Friday Aug 17, 2012

The Dow is currently trading at 13,115 up 143 pts over last week inching closer to the highs for the year, led by sectors tied to economic growth, after a reading on Americans’ feelings about the economy unexpectedly improved.  The S&P 500 is trading higher as well at 1,415.   Gold is trading at $1,617 an ounce, while oil futures at $95.87 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.89/Gal. 

Yields on 10-year notes, which move inversely to prices, are trading at 1.81%.  30-year bond yields are trading at 2.93%.  Mortgage rates have dropped so much that we are now following a lower security.  If this is something you may not truly understand please let me know.  I’ve been wrestling with trying to explain it in better terms.  If I get enough interest I’ll devote a blog to how the process works. 

Mortgages or FNMA 3.5% MBS (Mortgage Backed Security) is currently at 104.56.  I’ve been saying for some time now, (ok, more than a month), that we were due for a correction and to lock if you could, well we have now gone into that correction.  On July 25 we reached an all time high Price) of 106.31, and because it wasn’t able to hold, the correction began on Aug 2.  We are currently at a critical support level (104.5) that hopefully will hold.  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate. 

In economic news this week; Other than inflation reports, Retail Sales was the report most keyed in on this week.  After three straight monthly declines, retail sales increased 0.8% in July.  Details of the report were strong, with monthly sales rising across the board.  This was the biggest gain in sales since February, and compared with July 2011, sales are up 4.1%.  Retail sales account for about half of total consumer spending and about a third of final sales in the U.S. economy.

On the wholesale inflation side, producer prices, or PPI, rose 0.3% in July as higher food costs offset another decline in energy costs.  Core producer prices, excluding volatile food and energy, rose 0.4%. The severe drought in the Midwest appears to already be hitting prices.  Wholesale food prices in July rose 0.5% for the second straight month with corn prices rising 34.5%, the biggest rise since October 2006.

Consumer prices or CPI were unchanged in July, as lower energy prices offset gains in the cost of food and other items.  The so-called core consumer price index, which excludes the volatile categories of food and energy, rose 0.1%.  The CPI rose 1.4% over the year through July, the smallest 12-month change since late 2010. The core rate gained 2.1% over the past 12 months, the smallest gain since late 2011. The Fed Gods watch consumer prices, and are expecting inflation to be relatively low through 2013.

Builder confidence in the market for newly built single-family homes climbed in August to the highest level in more than five years on expectations the recovery in housing can continue.  Now I realize that big companies like to have stadiums named after them as in the “Staples” Center in Los Angeles, but naming rights to economic indicators?  Really?  The National Association of Home Builders/Wells Fargo housing market index rose 2 points to a reading of 37, which is the best level since February 2007.  Wells Fargo had to get their name onto the home builders’ index?  Isn’t it enough that they fund or own roughly 33% of all mortgages?  I guess the scary part is that a 2 pt rise in the index is the best we can do since 2007!  A level of 50 indicates “good” conditions.

A gauge of consumer sentiment rose this month on rosier views of current economic conditions, but remains relatively low, according to data released Friday by the University of Michigan-Thomson Reuters sentiment index.  There’s another company “Thomson Reuters” That has somehow got the naming rights to this particular index.  For a preliminary August reading, the index increased to 73.6  the highest level since May from a final July reading of 72.3. The sentiment gauge, which covers how consumers view their personal finances as well as business and buying conditions, averaged about 87 in the year before the recession.

Aside from sentiment and expectations, slow growth in the economy looks set to continue.  The Conference Board reported that its leading economic index grew a modest 0.4% in July.  The leading economic index consists of 10 components that together are designed to show turning points in the economy.  The indications point to slow growth through the end of this year.

If you know anyone who can benefit from my services as a Mortgage/Financial Advisor, please Send me a note on how to reach you.  My greatest goal is to see clients and friends happy.  I guess that’s why I love providing mortgage financing.  It’s an immediate gratification when you can help someone purchase a home, or lower their payment on their existing home.

Bill Bartok
Mortgage Advisor

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