| For the week of Mar 05, 2007 — Vol. 5, Issue 10 |
Last Week in Review  |
 |
| YOU KNOW WHO IS LOOKING FOR STOCKS? NOBODY! Last week’s volatility in the stock market stabbed at the hearts of both the Stock and Bond markets, with home loan rates swinging higher and lower throughout the course of the week. Economic news releases took a backseat to the massive movements in Stocks. Amazingly, when all the smoke cleared, home loan rates were unchanged to slightly improved for the week overall.
What happened? First, remember that the Stock and Bond markets compete for the same investment dollar. This means that when Stocks are worsening and investors are selling off their holdings, some of that money gets moved over into the Bond market, which helps home loan rates improve. And vice versa, when Stocks move higher and investors are buying into the Stock market, some of that money comes back out of Bonds, which causes home loan rates to worsen. Last week’s volatility began with the Chinese Stock market plunging, setting off a string of worldwide stock selling. Our own Stock market was ripe for a reversal lower, and money flowed out of Stocks and into Bonds, helping home loan rates improve. The next day, Stocks began to rebound, moving money back out of Bonds and causing home loan rates to worsen. But the “see-saw” action continued for the balance of the week - and may not be done yet, causing high amounts of volatility in Stocks and Bonds - and therefore, home loan rates. AND ALTHOUGH WEARY INVESTORS MAY NOT BE LOOKING FOR STOCKS…MAYBE THEY ARE LOOKING FOR A NICE NEW CAR THIS SPRING. IF YOU’RE IN THE MARKET FOR A NEW VEHICLE, DON’T MISS THIS WEEK’S MORTGAGE MARKET VIEW. |
| Forecast for the Week |
|
| So what’s the story with the Stock market? The increase in volatility, and even the recent decline, is actually perfectly normal. The steady seven month climb we have seen in Stocks was unusual, and the current 1000-day streak without a 10% decline is the second longest in history. So looking ahead, it would not be a surprise to see Stocks find their way even lower over the near term, before regrouping and making another run at new highs. The fact that outflows from Stocks are being “parked” into Bonds is a long term plus for Stocks, due to the temporary nature of this trade. This also tells us that Bonds and home loan rates will be a short term beneficiary, but will be adversely affected once Stocks start to rebound.
This week holds only one potentially major market-moving economic release, the February Jobs Report. Initial estimates are calling for the creation of 100,000 new non-farm jobs, down from January’s report of 111,000 new jobs. The chart below shows some mixed signals for Bonds, with a nice “rising pennant” formation - typically good news for Bond prices and home loan rates; but also shows that Bonds are “overbought” and ripe for a reversal lower. For now, the technicals will take a backseat at least until Friday, as Stocks seem to be driving all the action for Bonds and home loan rates. Chart: Fannie Mae 5.5% Mortgage Bond (Friday Mar 02, 2007)
 |
| The Mortgage Market View… |
|
| AHHH, THAT NEW CAR SMELL…often enough to make you jump at whatever financing package the dealer offers, anything to drive away in that shiny new dream! Leasing is becoming an increasingly common choice, as it normally provides a lower monthly payment than buying. But before you sign on the dotted line, make sure you know what kind of bill the dealer could hand you when the lease is up. The lease payment savings could be quickly eaten up with charges from the dealer if you’re not careful and informed.
The majority of car leases state that you will be responsible for any damage to the vehicle that is beyond “normal wear and tear.” So before turning in that leased vehicle, be sure and inspect it for damage. If damage is found, take the time to visit a few body shops and get some estimates. Why not just let the dealer figure it out and handle the damage repair? Well, the dealer may invoice you for a higher price than necessary for the repairs, and pocket the difference as profit - so doing your homework first will allow you the option of having a local body shop repair your vehicle at a lower price, before you turn the vehicle back in. If you choose to have the vehicle repaired with a body shop not affiliated with the dealer, be sure to use a competent repair shop and check out their track record with the Better Business Bureau. If the repair shop does a lousy job with the repairs, you may end up paying for the repairs twice to get it properly fixed. For example, if the body shop repairs a fender, but does not match the paint with the rest of the vehicle - the dealer will likely hand you another invoice for the charges to match up the paint. Confirming that the body shop is reputable will ensure that you only have to foot the bill once. Try to avoid filing a claim with your insurance company for cosmetic damages to a vehicle, and instead opt to pay for the expense out of pocket. Although it may seem less expensive to file a claim with the insurance company, they may tag your account as being high risk - even for cosmetic work done to a leased vehicle - and it may result in a jump in your insurance premiums. And although your new car makes it tempting to always be the designated driver for road trips and outings - be careful not to exceed the mileage allowance. Each lease specifically states the amount of mileage that can be accumulated each year, and if that mileage limit has been exceeded, the bill could be costly. And no, you can’t force the mileage to turn back by putting the car up on blocks and slamming the car into reverse…this trick didn’t even work for the charmed Ferris Bueller! But leasing can be a great choice, particularly if you tend to purchase new vehicles every few years. In fact, about 25% of Americans choose to lease rather than buy. About half of those leases are on European vehicles, about 25% are Asian, and about 20% are American. Mercedes leads the way with 60% of their sales being leases, followed by Lexus at 59%, Toyota at 34% and GM at 24%. |
| The Week’s Economic Indicator Calendar |
|
| Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
Economic Calendar for the Week of March 05 – March 09
|