"It’s not a matter of IF, but WHEN!"

That old adage proved true last week as the fiscal problems in Europe came back to roost as predicted - even after being overshadowed recently by news from Japan and the Middle East .

Despite all the focus on government debt in Europe , it’s important to note that the problems are more than just financial; there is also a ton of political capital at risk. The stronger and more fiscally conservative Euro member countries like Germany and France do not want to pick up the tab for poor performing countries like Ireland , Greece , Portugal and many others standing in line behind them. And as news flows out of Europe - either good or bad - Mortgage Bonds and home loan rates here in the US will move in sympathy.

One news item that pressured Bonds lower last week was word that inflation in the United Kingdom (UK) jumped to the highest level in two years in February. Remember, inflation is the archenemy of Bonds, and inflation around the globe seeps into the US .

In fact, we’re already seeing it as Producer Prices (which look at wholesale inflation) are running at very hot levels... with prices up 3.3% in just the last three months. If pricing pressures don't recede for producers of goods and services, companies will have one of two choices:

Either: Absorb the higher cost of goods - and, thereby, hurt earnings growth

Or: Pass those increased costs onto consumers - thereby, creating consumer inflation

Both of those scenarios would be bad for Stocks and Bonds. And since home loan rates are tied to Mortgage Backed Securities - which are a type of Bond - those scenarios would also be bad for home loan rates.

Speaking of Mortgage Backed Securities, last week the Treasury Department announced it is going to begin selling some of its massive Mortgage Backed Securities holdings. This is important to anyone looking to purchase or refinance a home. That’s because this announcement immediately pushed Bond prices significantly lower, as Traders tried to get their own positions sold. Think of it as a financial game of musical chairs... in which no one wants to be the last one standing with a mitt full of Mortgage Backed Securities. This isn’t the last we’ll hear about this - and since home loan rates are tied to Mortgage Backed Securities, this creates the potential for home loan rates to rise in the near future.

Fortunately, home loan rates are still at very attractive levels for now, despite the Bond market taking a hit for most of last week. So if you’ve been thinking about purchasing or refinancing a home, this is the time to see how you can benefit before rates possibly move higher. Because as bad as it was to lose some Bond pricing in the last few days, prices could move significantly worse depending on how they hold on to technical support.

For more information on what this means and how it may impact you or someone you know, call or email today. I’ll be happy to explain the situation and offer advice based on your unique situation.

Home Equity Lines of Credit and Your Credit Score

What You Need to Know and Do

Credit reports have always been important, but they’ve grown even more important in recent years. Now more than ever, you need to make sure you understand what’s on your credit report - and you need to know what steps you can take to improve your score.

For example, did you know that a Home Equity Line of Credit (HELOC) can impact your credit score quite dramatically... and sometimes unfairly... depending on how it is reported?

Here’s What You Need to Know... and Do!

First, you need to know that HELOC’s are commonly reported by the three credit bureaus as revolving accounts. In reality however, they do not fall under the typical revolving terms, even though they are set up in the same way as a revolving account. That’s because HELOC’s are secured by an asset.

Here’s the Good News...

The Fair Credit Reporting act requires reporting agencies to report true and accurate information. So when a HELOC is reported as a revolving account, you can actually send a letter to the three credit bureaus asking them to change the type of account from "Revolving" to "Line of Credit" or "Other."

This way, the account will not be rated by the scoring system using the "Balance to Limit" ratio scenario - which can drop a credit score by as much as 75 points if the HELOC is maxed out to the limit of the available credit line.

A Final Word of Advice

If you do decide to send a letter, you should send it as a Certified Letter, along with a copy of the HELOC agreement. You may have to send the letters more than once, but persistence is the key to accomplishing a positive result with the bureaus.

This article was adapted from information provided by national credit expert Linda Ferrari, author of "THE BIG SCORE: Getting It and Keeping It, Buying Power for Life." Learn more and check out her credit resources at http://www.lindaferrari.com/

"Double dose!" is the phrase of the week, as we’ll see multiple reports this week focusing on the same segments of the economy

• We’ll start off with some big news Tuesday, when the Federal Reserve holds its FOMC meeting and releases its Policy Statement later that afternoon. As always, what the Fed says about the economy, inflation, and its Quantitative Easing program could have an impact on home loan rates.
• There’s a double dose of real estate news with Wednesday’s release of data on Housing Starts and Building Permits in February. Check back with me on Wednesday to get the breakdown of how the news actually arrived!
• There’s also a double dose of manufacturing news. Tuesday’s Empire State Index looks at New York State ’s manufacturing sector and is a good gauge of manufacturing overall, while on Thursday we’ll also see another important manufacturing report in the Philadelphia Fed Index.
• A double dose of inflation news also comes our way this week with Wednesday’s Producer Price Index Report, which highlights inflation at the wholesale level, and Thursday’s Consumer Price Index Report, measuring inflation for consumers like you and me! Remember: The Fed is intent on creating inflation, which is unfriendly to home loan rates, and signs of inflation from these reports could be unfavorable for rates.
• Thursday we’ll get a read on employment with the weekly Initial Jobless Claims Report. Initial Jobless claims rose 26,000 in the latest week to 397,000, which was above expectations but still below that psychological barrier of 400,000.
• Finally, on Thursday we’ll see a double dose of manufacturing data with the release of reports on Capacity Utilization and Industrial Production in February. The capacity utilization rate provides an estimate of how much factory capacity is in use. If the utilization rate climbs too high it can lead to inflationary bottlenecks in production. The Federal Reserve watches this report closely and decides how to set interest rates on the basis of whether production constraints are threatening to cause inflation.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see by the arrows in the chart below, Bond prices experienced some up-and-down volatility last week, but ended the week near where they began - meaning home loan rates are still near historic lows.

So what should you do if you or someone you know is in the market for a new home?

The bottom line is that even if housing were to drop a little further in some areas, the affordability coming from today's rates serves as a backstop against any moderate price reduction. Remember, housing will likely be in a much better position in the second half of the year and at that time rates could be a bit higher. Now’s the time to take advantage of the combination of low rates and affordable housing.

Real Estate Expectations

The demand for homes in our area has rebounded to a certain degree, due to such factors as continued growth of immigrant population, lack of vacant land and new development, proximity to New York City, well-performing schools and relatively low property taxes. In addition, the combination of historically low mortgage rates, lower home prices and relatively high income levels of two-earner house holds in New York City has created a favorable buying opportunity for many families. Buyers now are not speculators, they are buying a home to live in and they realize that their very large investment may not show any appreciation for a long time, therefore, they are pragmatic, they set up a budget, (often necessitated by strict lending guidelines), they shop and compare and they expect to get the best value they can find.

On the sellers' side, it's been only five years since the peak of the real estate market but many homeowners are still expecting those high prices to return before they can make important decisions about changing their lifestyle, retiring, downsizing, etc. Well, the truth of the matter is that these prices are not coming back this spring or anytime soon.

The strategy of pricing your home at the current market levels will create more exposure, resulting in more showings to savvy buyers who will appreciate the value and place realistic offers quicker out of fear of loss.

Comparing our statistics, we have maintained the same ratio of sell price to list price. 96% in both 2009 and 2010, and the average "days on the market" has stayed below 60 - 58 in 2010 and 56 in 2009, while it took an average of 70 days to sell houses in 2008.