The US Dollar has dropped. Find out why and what it could mean to home loan rates!

"Bet your bottom Dollar?" These days the more appropriate question is: Where is the bottom of the Dollar? That’s because the US Dollar is starting 2011 in very poor fashion, with its value dropping relative to other currencies.

Let’s take a look at why... and what this could mean for home loan rates!

1. Some of the Dollar’s drop is attributed to the recent strength in the Euro, which has gotten a boost from some positive stories of late, like Spain and Portugal 's ability to sell debt in the Bond market without crisis. But the question is...have Europe 's problems gone away? No - there will be more problems ahead for the region and as they emerge, we should see a reversal in the Euro's strength along with improvement in the US Dollar.

2. Another reason for the Dollar's weakness is the Fed’s Quantitative Easing (known as QE2). Remember, while it would never be officially stated, one of the implicit aims of QE2 is to devalue the US Dollar in order to boost our exports and thus GDP.

At this point, the weakening US Dollar hasn't had a big negative effect on the US Bond market, but should the Dollar materially weaken, it could make US denominated assets like US Bonds less valuable and desirable amongst global investors...and it has been these foreign investors, like China, who have supported the US Bond market for years by purchasing our debt. Remember, home loan rates are tied to Mortgage Backed Securities, which are a type of Bond. So negative news for Bonds would also be bad news for home loan rates.

In housing news last week, Existing Home Sales for December were reported much better than expected. The jump in sales is likely attributed in part to the recent trend of rising home loan rates, which has prompted many homebuyers to take advantage of the still low home loan rates. Building Permits - which signal future construction - also came in better than expected last week, surging 17% in December.

Relatively speaking, 2011 looks to be a good year for the housing industry. There will still be some areas that suffer price declines and those will be where foreclosure backlogs overhang and where unemployment rates are even higher than the national average. But housing has bottomed out in many areas and should see more of a pick up in the second half of 2011. And although home loan rates will likely rise slightly as the year progresses, they are still near all-time lows right now. That means homebuyers still have a tremendous opportunity in front of them.

If you or someone you know is considering purchasing a home, the combination of low home loan rates and affordable home prices make this an ideal time. Call or email today to discuss how you can benefit from the current situation.

Stocks continue to like the good economic news we have seen, but how are Bonds and home loan rates faring?

It’s been said that "no news is good news...." And while that can be true, lately many of the economic reports we have seen have been very good news, as they show signs that our economy continues to improve.

Stocks just enjoyed their seventh straight week of gains, due to the positive economic reports that have been streaming in. While this is certainly cause for celebration, an important question we need to consider is what does this mean for home loan rates in the short and long term?

On the one hand, improvement in the economy is good news on the housing front, as once people feel better about keeping their job or getting a new job, home purchasing activity will rise, and values will follow. But on the other side of the coin, as the labor market and economy improve, home loan rates will have to gradually rise as well. And remember, this all ties in with the Fed’s plan to inject the full $600 Billion into our economy as part of their latest round of Quantitative Easing, known as "QE2."

Remember, the three part goal of QE2 is to create inflation, lower unemployment, and boost Stock prices - and we are seeing evidence of these goals occurring. Not only have Stock prices improved over the last seven weeks as we discussed above, but December’s Jobs Report posted the lowest unemployment rate since May of 2009. And last week, we saw some evidence of inflation as the Producer Price Index (PPI), which measures inflation at the wholesale or producer level, came in higher than expected. While December’s Consumer Price Index wasn’t quite as hot as the PPI, going forward our increasing budget deficit could cause inflation to spike down the road.

So what’s the bottom line if you have been thinking about purchasing or refinancing a home? Home loan rates are still very attractive right now, so call or email me if you want to get started. Or forward this newsletter on to someone you know who may benefit from today’s historically low rates.

The labor market continues to improve, and while that’s good news for our economy, what does it mean for home loan rates?

"Whistle while you work." Snow White. That’s something more people have been able to do lately, as the labor market continues to steadily improve. Here’s what December’s Jobs Report showed... and what it means for home loan rates.

The Labor Department reported that 103,000 jobs were created in December, and private job growth was 113,000. While these numbers were below the recently ramped up expectations, they do show that the trend in the labor market is improving. Also noteworthy are the upward revisions to the prior two months readings, showing 70,000 more jobs created than had been previously reported.












 

And yet, the real shocker in the report was a significant decline in the unemployment rate to 9.4%, which is the lowest unemployment rate since May of 2009.

So what did we learn from this Jobs Report?

1. While positive news, this Jobs number was still soft enough to support the Fed continuing on their plans for a full dosage of QE2 for the economy... and this won’t be good for Bonds and home loan rates, as it carries along some real inflation threat down the road.

2. The recent tax package and lower tax rate extensions have not yet had enough time to be seen or felt in the economy, so those factors should help provide further improvement in the labor market in future months... but also will create inflation - bad news for Bonds and home loan rates.

The bottom line for right now is that the familiar chant "Don't Fight the Fed" continues to ring true. The Fed is intent on creating inflation, lowering the unemployment rate and raising Stock prices...and they have already been somewhat successful. QE2 will likely keep coming until the employment picture improves significantly, and this is all going to be unfriendly for Bonds and home loan rates ahead.

So what should you do if you have been thinking about purchasing or refinancing a home? The good news is that home loan rates are still extremely attractive right now, so call or email me now to get started. Or forward this newsletter on to someone you know how may benefit from today’s historically low rates.