Eric Engman’s Weekly Wrap

Weekly Commentary for the week ending July 21, 2011

The Good, The Bad, and the Incomprehensible

Gold (see to the right) climbed to a new record high, exceeding $1600 an ounce last week for the first time. Silver also rose to a new high (40.61). But the prices of most other commodities, oil included, edged down.

This tells us that the markets are very nervous—uncertain, in particular, about the debt crisis in the European Union and the debt ceiling deadlock in the U.S. There is a fear of negative outcomes in these economic melodramas, and that makes investments with any element of risk (which even includes stocks) anathema to world investors. So stocks lose value, and in this case, many commodities are hit as well.

As for interest rates…we’ve noticed time and again that bad or worrisome news for the overall economy translates into lower interest rates. The obvious reason is that money needs to be as available as possible to businesses, investors, and private individuals if the economy slows or weakens. So we’ve seen the yield on the 6-month Treasury bill fall all the way to 0.04%, which is like leaving your money with someone for six months and getting it back eventually with a free sip of coffee as a reward.

The 10-year Treasury note, which 30-year mortgage rates track very closely, has also fallen—making its way to 2.93%. The weekly Freddie Mac average rate for 30-year loans fell last week by 9 basis points to 4.51%. It may hover at its current level for a few days, but it’s reasonably likely to ease slightly more in the coming week.

But the big question, of course, is what will happen in the debt ceiling negotiations. Experts see the possibility of an interest rate spike if Congress fails to avoid a default (or, perhaps more likely, a partial default). The jury is out, though, on what exactly the effects could be. Still, it will be well to keep in mind that there is a possibility of rising rates a few weeks out. This could be significant for financing that is being processed.

The Producer Price Index—the measure of wholesale inflation—displayed a wide gap between its headline fall of 0.4% and its core rate (with food and energy prices removed from the computations) of a 0.3% rise. The Consumer Price Index behaved similarly. Both displayed the fact that food and energy costs fell somewhat sharply this past month, and that could have a good effect on disposable income and the retail purchases that could be made.

If the data for new unemployment insurance claims has any stay-power to it, this too could help people feel more confident about making retail purchases.

It is a tense time. No doubt about it. But the underlying fundamentals continue to grind out fairly good indicators of recovery (notice housing starts to the right)—slow though it is.

If you have any questions about the topics discussed or any other issues/items of interest, please don’t hesitate to contact me.  I’d be happy to help any way I can.

Sincerely,

Eric Engman

Partners Mortgage - Your Direct Lender

Mortgage Planner

NMLS # 251886

916.960.0060 direct

916.835.6084 cell

916.782.9949 fax

www.partnersmortgage.com/eengman

Voted “Best of the Best” mortgage company, 2010

Eric Engman’s Weekly Wrap

Weekly Commentary for the week ending June 30, 2011

Among the week’s indicators, the latest S&P Case-Shiller Index stands out as important. It is positive (but somewhat ambiguous), giving us the first good reading for the 20-city index in eight months. The value of homes apparently increased by a very slight 0.7%--but the good news here is that it didn’t decrease again.

Still, many economists rushed their skeptical judgments to clients and the press, warning that the better number may simply be the result of better weather, which got potential buyers out of their homes and into the real estate markets. Whatever the case may be, one month’s slight improvement to home values doesn’t amount to a lasting trend. We will need time to see if the housing market is indeed in the midst of turning around in a sustainable fashion.

At this point, therefore, the educated opinions of Frank Northaft (chief economist for Freddie Mac) may prove more important and credible for us than the mild positive shift in home values supplied by Case-Shiller. Northaft, at this point, is forecasting a better second half of the year than the first half of 2011. “Economic growth should pick up in the second half of the year,” Northaft wrote recently, “supported by accommodative monetary policy, restoring stronger monthly job gains and bringing the unemployment rate down toward 8.6% by the fourth quarter.”

Northaft sees mortgage rates remaining in the 4.5% to 5% channel and loan qualification requirements easing very gradually. He also expects the overall economy to continue improving and, with it, he predicts the jobs market will inspire greater confidence among potential homebuyers. As buyers who have been waiting on the sidelines for signs of an improving economy begin to see more of those signs, more homes will be purchased.

Thus far, of course, such signs have remained rather subtle—like the latest S&P Case-Shiller numbers—and they are unlikely to become tremendously obvious. Unless we’re watching very careully.

But, as you have doubtless noticed, most of us are monitoring economic indicators more closely than ever before. Improvements in the economic outlook, therefore, are very likely to be noticed and discussed. And the real estate market will probably improve substantially (though still gradually) as a result of the incremental accumulation of better data.

That’s not a promise, but it’s a highly respectable forecast.

If you have any questions about the topics discussed or any other issues/items of interest, please don’t hesitate to contact me.  I’d be happy to help any way I can.

Sincerely,

Eric Engman

Partners Mortgage - Your Direct Lender

Mortgage Planner

NMLS # 251886

916.960.0060 direct

916.835.6084 cell

916.782.9949 fax

www.partnersmortgage.com/eengman

Voted “Best of the Best” mortgage company, 2010

Eric Engman’s Weekly Wrap

Weekly Commentary for the week ending June 16, 2011

Is there anything we can do to both help the economy recover and to take advantage of what is surely one of today’s best economic opportunities?

Yes. Many of us can purchase residential real estate—in most cases, a home. Further, many can help others become more aware of the opportunities now available in real estate.

We are unlikely to see a time again when interest rates are this low—and thus, when the cost of purchasing a home is this affordable. We are unlikely too to see home prices compare as favorably to the cost of renting a home—allowing us to take advantage of the full benefits of home ownership. We are also unlikely to see a time when so many sellers are so willing to negotiate with great flexibility.

But there are problems of course. First, the overall economy is still weak, and potential buyers are hesitant to make a big purchase when they’re uncertain of their economic future. Second, lenders—who cannot afford to be hurt by borrowers who may prove to be incapable of making regular payments on their mortgages—have tightened the restrictions that guide their qualification of new borrowers for loans.

Also, there are a great many potential homebuyers who are simply incapable of purchasing a new home, often because they are “underwater” with the home they currently own or because they have a few problems in their credit record. Rather than just waiting for the problems to pass, though, many of these potential buyers will benefit from beginning to work with a real estate professional and a mortgage loan officer whom they understand and trust. They can take steps to improve their creditworthiness in the eyes of lenders, preparing to take advantage of this real estate market before it passes.

Still, many potential homebuyers are holding back unnecessarily. Many are more qualified than they know, and can even avail themselves of programs that will help them make monthly payments even if they are laid off for a time.

More to the point, the real estate market is beginning very gradually to thaw—as recent articles in The Economist and The Wall Street Journal have asserted—and those who buy a home wisely are very likely to wind up glad they did when rates and, with them, home prices begin to firm, and the market isn’t nearly so defined by distress sales.

We can, of course, complain about the current state of the economy, and justifiably so. But it has created a real estate market that is full of amazing opportunities—as the recent activities of investors have made clear. And thankfully, the sale of available properties can only support the hastening of the economic recovery in our nation, benefiting all of us.

If you have any questions about the topics discussed or any other issues/items of interest, please don’t hesitate to contact me.  I’d be happy to help any way I can.

Sincerely,

Eric Engman

Partners Mortgage - Your Direct Lender

Mortgage Planner

NMLS # 251886

916.960.0060 direct

916.835.6084 cell

916.782.9949 fax

www.partnersmortgage.com/eengman