ARAMCO Report - The Mother of ALL Mortgage Blogs!

U.S. Trade Deficit Grows

Posted by The Aramco Group on Sat, Jul 11, 2015 @ 14:07 PM

The trade deficit grew a little wider in May, resulting from declines in exports of American aircraft and other manufactured products. The nation’s shortfall rose to 2.9 percent or a seasonally adjusted $41.9 billion, according to the Department of Commerce.

Exports suffered because of a strong dollar, making purchasing American goods with foreign currencies more expensive. This is particularly true in vital markets such as the European Union and China, both of whose economies are struggling. The Greek debt crisis has shaken Europe and China is contending with the looming fears of a stock-market crash.

The volatility of the U.S. trade deficit has Federal Reserve officials keeping an eye on the global economy as they consider raising the benchmark interest rate for the first time since 2008. While there remains worldwide economic uncertainty, the U.S. has seen a slowdown in inflation, a growing jobs market and home prices leveling. These factors should keep mortgage rates affordable in a historical context. The current conforming no point 30-year fixed rates average 4.125 percent and 15-year rates average 3.25 percent.

Do you have a question for Real Estate & Mortgage Analyst Mehran Aram? Submit your queries about a home purchase, refinance, or reverse mortgage via Aramco.Biz, social media (#AramcoReport), or over the phone at (866) 381–8888 and your question may be featured in an upcoming article.

Topics: Greek Debt Crisis, European Union, China, 30 year fixed rates, Mortgage rates

Of GDP, QE3, and HLR (Home Loan Rates)

Posted by The Aramco Group on Fri, Feb 24, 2012 @ 15:02 PM

If at first you don't succeed, try, try again.

That popular idiom could be applied to the Advance Gross Domestic Product (GDP) reading – the first of three readings – for the 4th Quarter of 2011. That reading came in at 2.8%, a bit below the expected 3.2%. This number will be revised two more times, but if the final GDP remains at 2.8% then the overall GDP for 2011 would be a paltry 1.57%.

That's not much.

GDP represents the market value of all of the goods and services produced within a country in a given period and is an indicator of our standard of living. So 1.57% would certainly put the "gross" our Gross Domestic Product, especially when you consider that the government has underwritten more than half of that economic growth with the Payroll Tax benefit.

What's more, in addition to being subsidized by the government's Payroll Tax Holiday, the GDP reading was driven mainly by a buildup in inventory (retailers buying from wholesalers), NOT by consumer sales. It would be quite reasonable to see this trend reverse in the first part of 2012, which would make for a weaker GDP reading. And a weaker GDP reading will make a third round of quantitative easing (QE3) a virtual lock.

(This definition of quantitative easing is courtesy of Investopedia: "A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.")

So why is this significant and what does it have to do with home loan rates?

First, it's important to understand that home loan rates are tied to mortgage bonds, and when bonds improve, home loan rates typically move lower. (All bets are off currently, however, due to the unresolved Greek debt crisis, of which I've written on numerous occasions.) History has shown that bonds improve in anticipation of quantitative easing, then selloff once the official announcement is made. Think about the old investing adage: "Buy on the rumor and sell on the news."

If rumors of QE3 continue to swirl, we should continue to see great home loan rates leading up to any actual announcement. And even if the Fed doesn't pull the trigger on QE3, rates will likely remain attractive as the continuing debt problems in Europe will make U.S. bonds a safe haven for investors.

The bottom line is that now remains a great time to purchase or refinance a home. If you have any questions or need any help navigating today's opportunities, call or email me anytime. I would love to meet you and help you get the lowest possible rate for your purchase or refinance.

Topics: mortgage interest rates, Greek Debt Crisis, European Union, mortgage backed securities, GDP, economic data

Checking In On Greece

Posted by The Aramco Group on Mon, Feb 13, 2012 @ 09:02 AM

It's been a while since we've heard much about the Greek debt crisis. Americans frequently succumb to the "out sight, out of mind" syndrome - that if we're not talking about it then it must not be an issue any more.

Um, not so much. Here's what's been happening in the cradle of civilization.

Lucas Papademos assumed the Prime Ministership on November 11th last year (if you're keeping score that's 11.11.11; seems like that should mean something but I'm not sure what). He is an economist who was governor of the bank of Greece from 1994-2002 and vice president of the European Central Bank from 2002-2010.

Papademos's primary goal is to get the European Union bailout and pave the way for elections (scheduled for later this month). His stated priority is to keep Greece in the Eurozone.

Last month Papademos told business and labor leaders that the triumvirate of the European Union, the International Monetary Fund and the European Central Bank is looking for Greece to instill changes, including adjusting the minimum wage, abolishing Christmas and summer vacation bonuses and automatic wage increases.

The bottom line is that Greek workers will have to accept significant income reductions for a default to be avoided. The problem is that Greece is an entitlement society, and when people have been given something automatically or for free for an extended period of time, they tend not to like it when that gets taken away. (The same applies to welfare entitlements here in the United States. That's another discussion.)

The bottom line is that there is no easy way out of the Greek debt crisis (and the Greek debt crisis is a mini (or maxi?)-version of what the entire European Union faces). Changes will have to be made, and the impact from those changes will range from mildly distasteful to quite uncomfortable to extremely painful to a whole lot of Greek people.

Here's a simple way to think of it: It's just like losing weight. Pick any fancy diet plan or program you want, the only way to lose weight - the ONLY way - is to burn more calories than you take in. That means you exercise more (which, when done correctly, can be uncomfortable) and eat less (which, when done correctly, just isn't as much fun).

Well, the only way out of a financial crisis - the ONLY way - is to bring in more than you spend. As it happens, because of the dismal condition of their economy and that fact that for years the government has given out far more than it takes in (try that with your checking account) the Greeks are more or less out of financial income resources. That leaves spending less, which means every Greek is going to have to sacrifice.

The reason the crisis in Greece has such an impact on mortgages in the United States is that just about anything in the U.S. is considered a much safer investment, certainly than anything even remotely related to Greece and pretty much any significant investment in Europe as a whole (because while Greece is the most precarious situation in Europe, it is far from alone. Spain, Italy, Portugal and Ireland, among others, are also in deep fiscal trouble). That makes investment in things like mortgage backed securities attractive, and that keeps rates down.

Happy Monday.

Topics: Greek Debt Crisis, European Union, mortgage backed securities, IMF

November Rates Promising On Strong October Close

Posted by The Aramco Group on Wed, Nov 2, 2011 @ 10:11 AM

The mortgage market kicked off November on a very positive note thanks to three strong days to close out October. Stock prices fell for the third day in a row, which precipitated a third straight bond rally that pushed home loan rates lower.

The government of Greek Prime Minister George Papandreou faces a parliamentary confidence vote this Friday, and Papandreou surprised everyone with a call for a referendum on the European bailout package. That increased uncertainty and led to panic in the financial markets worldwide, which prompted a huge flight-to-safety rally in the bond markets and a corresponding stock sell off.

The situation in Greece is tenuous. The referendum, scheduled for early December, could determine Greece’s fate vis-à-vis the European Union. That’s why the EU and the International Monetary Fund (IMF) have put a hold on their €8 billion payment, the sixth installment in a total €110 billion bailout package.

Without the aid, Greece faces almost certain bankruptcy, and the European monetary union hangs in the balance. However, if the Papandreou administration loses the confidence vote – and its Pasok party controls just 152 of the 300 seats in the Greek parliament – all bets are off.

As a result, conforming, no-point 30-year fixed rate mortgages are currently averaging close to 3 7/8 – that’s just 1/8 of a percent higher than the all-time low for those loans! Fifteen-year rates are coming in right around 3 3/8.

Don’t forget, you can hear my mortgage reports everyday on San Diego’s KOGO AM 600 at 3:55 p.m. and 6:55 a.m.

Topics: Greek Debt Crisis, European Union, IMF, Mortgage rates