Weekly Mortgage Newsfrom Rodney Anderson of Dallas Mortgage Company - CTX MortgageWeek of August 18, 2006
"INFLATION HAS MADE ME SO POOR, I CAN'T EVEN AFFORD TO PAY ATTENTION" (Anonymous) ...
But the Fed's sure been paying attention to inflation. It's been called unwanted, unwelcome and uncomfortable - but a little inflation is a not a bad thing, according to Fed Chairman Ben Bernanke, who has a target range of 1 - 2% inflation. So just like Goldilocks, not too much and not too little is just what the Fed is looking to see. And last Friday we all saw the latest read on inflation, which showed that the items and services we typically buy as consumers cost us 2.8% more than they did a year ago. So the rate of inflation on the consumer level is up 2.8%, which is a bit higher than the Fed ideally wants.
Bond prices and home loan rates bumped around a little in response to the news, but rates ended up only slightly worse for the week overall.
So what's the big deal with that? 2.8% sounds pretty close to 2.0%, so does it really matter? The answer is a big YES, it sure does matter. The Fed is not only watching over the economy today, but for many years and generations down the road. And what may appear to be a modest amount of inflation above the Fed's target range could amount to a very large difference in the lives of tomorrow's adults.Here is an example - spending $30,000 today on something like a car would surely cost more in the future because of inflation. Just 2% inflation each year would make that $30,000 car cost $54,000 thirty years from now. But if inflation were 4%, the car would cost nearly $100,000. And at 6% inflation, a car that cost $30,000 today would cost about $170,000 in three decades! Of course, cars are not the only thing that would increase in price - almost everything would. So the Fed is trying to guard against too much inflation by hiking rates to slow the economy. This way, the value of money and quality of life for our future generations will be better preserved.
WHAT IF RIGHT NOW, AS YOU READ THESE WORDS, THE POWER SNAPPED OFF...AND STAYED OFF FOR A WEEK. WOULD YOU AND YOUR FAMILY BE PREPARED? AND THE POWER GOING OFF IS A LOW-LEVEL EMERGENCY COMPARED TO MANY THAT HAVE HAPPENED IN THE U.S. OVER THE PAST SEVERAL YEARS. EMERGENCIES ARE NEVER EXPECTED...BUT YOU CAN BE PREPARED. DON'T MISS THIS WEEK'S IMPORTANT MORTGAGE MARKET VIEW.
Forecast for the WeekThis week will be full of action and information...including a look at the housing market, with Building Permits and Housing Starts - as well as a read on inflation in the wholesale side of the economy, via the Producer Price Index. But all the reports will pale in comparison to the big enchilada, the highly anticipated Fed Rate Decision and Policy Statement due to be delivered on Wednesday. The last time the Fed got together in August, they made a decision to pause in their two-plus year rate hike cycle...a decision which was not unanimous. And since the last meeting, individual Fed members have been on the road discussing their views on inflation and the economy, some saying that inflation is still outside the range desired by the Fed.
So what might the Fed do on Wednesday, and how will it impact you?
Well, let's take a look. Most expect that the Fed will retain its "paused" status, in order to let the effects of the past 17 hikes fully take effect in the economy, slow it down, and reduce the risk of inflation. Just like a parent gives their sick child medicine, they have to exercise patience and wait for the medicine to take effect, rather than immediately expecting the child to become well. So if they do indeed decide to stay in the pause position, many will breathe a sigh of relief, knowing that their home equity line of credit and other short term debts will not increase further in rate. What will be most interesting to dissect will be the tone and wording of the Policy Statement, and to discover if the vote is again not unanimous. The flavor of the Statement alone can move the markets very quickly, and this meeting is under especially high scrutiny.
If more Fed members disagree with the vote to pause, due to their concerns about inflation in the economy - this could cause Bond prices and home loan rates to worsen in a hurry.Bottom line - the coming week's action might just mean that home loan rates get thrown through the bumpers.
The Mortgage Market View...READY OR NOT...
Emergencies are never planned, but can happen in a heartbeat. Ever had a blackout at your home...and as you waited for the power to come back on, started to wonder what would happen if the minutes turned into hours or days? Would you and your family be prepared? The Department of Homeland Security (DHS) wants to make sure you are, and has identified September as National Preparedness Month. An emergency situation could be an earthquake, hurricane, potential terrorist threat, or even just that blackout.Hopefully you will never be faced with an emergency situation of your own, but if you are, having an emergency kit will help ensure that you and your loved ones will have the bare necessities such as food, water, and items to keep you warm. And determining all the right items for each member of your family, pets, and those with special needs could normally be a very grueling process. But the DHS has made this process very simple.To help you get started preparing your emergency kit, The Department of Homeland Security has developed a user friendly website that allows you to download and print all of the items that you will need to gather. Visit the DHS Emergency Kit site, and you can get a quick list of the basics, such as water, food, radio, flashlight and batteries - including a printable list of the quantities and types that should be purchased, based on your families needs. There's also valuable information on"Unique Family Needs" which includes items for infants, pets, and those with special needs.So take a few minutes to visit the site, and forward this article on to your friends, family members, and colleagues...or better yet, prepare a starter kit for them as a gift. When the power snaps off unexpectedly...or worse...don't be caught unprepared.
Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
