The Dow Jones ended the week flat, at 11,499, as stocks saw very little volatility. The bond market on the other hand, is where all the action was, and by action I mean selling. (As a reminder, bond market sell-off = increase in mortgage rates). To recap the last 45 days, the FNMA 4.0% bond, which is the bond that directly translates into a mortgage rate for the consumer, has lost 700 basis points. This loosely translates into about .875%! The bond finally made back some ground today, but hardly made a dent in cleaning up the wreckage left behind.
The two primary reasons for the sell-off in bonds are 1) Quantitative Easing 2 (QE2) and 2) Tax bill that was proposed several weeks ago, and signed into law today. Both actions promote inflation and inflation is the bond market’s arch-nemesis. Bond investors sell their positions when faced with inflation because the rate of return on the investment could then be lower than the rate of inflation. Example, if a particular bond is yielding 3.5% and inflation is running at 5%, than the bond investment is essentially losing 1.5%. So, the sell-off begins until the yield on the bond is believed to at least outpace inflation.
Still awake? Below is a link in the WSJ for some of the more pertinent announcements in the new tax bill.
Wall Street Journal Tax Bill
Local Economy and Real Estate Market
Below is a link from the Las Vegas Review Journal, and…get ready for this….Las Vegas was ranked #3 out of 54 cities in……HOME PRICE APPRECIATION for the month of November. That’s A-ppreciation…with an A…
LVRJ Home Appreciation
Loan Program of the Week:
We recently rolled out our FHA 203k rehabilitation program. This allows an FHA borrower to purchase a home that needs work and roll in the cost of the repairs. This product works well for homes on the market that are a great value but need repairs that the seller is unwilling to make prior to the closing. Please feel free to email me or call me for further details.
The Tangent: “The Sequel Sucked”.
On November 3rd, The Fed Reserve announced action to stimulate the economy with an additional dose of Quantitative Easing, better known as QE2, the sequel to QE1 that debuted in 2008. QE-1 led to a significant decrease in mortgage interest rates. QE2 led to the exact opposite. As yields on US treasuries and mortgage-backed securities continued to rise, Ben Bernanke of the Federal Reserve made a rare prime time TV appearance on “60 Minutes” to reiterate the commitment to QE2. 45 days later, and about a 1% increase in mortgage rates later, I can’t wrap my head around how this helps an ailing economy. I majored in Economics in college, but rather than dust off some old text books, I turned to a cartoon on youtube: This video actually provides clarity for the animosity that other country’s finance ministers have taken towards the US’ Federal Reserve and its decision to instill QE2. As a mortgage loan officer, I have to say that the sequel sucks! But, if a weak dollar leads to a healthy increase in exports, which leads to an increase in manufacturing, which leads to an increase in jobs, which leads to economic growth, then I guess I can live with that.
