The Mortgage Man

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Archive for oil prices

Tuesday September 2, 2008

So, what happened with mortgage rates while you were weathering Gustav?

Well, the long weekend is over.  Summer has officially ended.  And, we are back at work to see what gifts were left behind by our friend Gustav.  Those who made the mass exodus from New Orleans are probably mad and irritated that they left.  But, it is that kind of thinking that gets people killed when the storm is worse than expected rather than weaker than expected.

New Orleans survived the storm, and for the rest of us on either side, it definately could have been worse.  But the markets today are reacting to the lack of any affect on the offshore oil platforms.  As reports from all of the companies with assets in the Gulf begin to come in, we are seeing that the damage is mininal if at all, and the oil traders are running for the hills because of it.

So what does this have to do with mortgages and real estate?  Well, the sell off in oil is creating a run on the stock market.  A run on the stock market is causing bond traders to sell bonds and buy stocks.  As the bonds fall from a sell off, mortgage rates rise.  Because of this, today is a great day to lock in your rate ahead of losses that are sure to happen this afternoon or tomorrow in mortgage rates.

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Thursday August 28, 2008

Here is how the market is shaking out today.

Today, the preliminary Gross Domestic Product report came in at 3.3% above expectations of 2.7%, and well over the previously reported 1.9%.  The final number for this report is not due out until next month, but the preliminary reading has people exiting bonds and buying stocks today.

Because of this, you might want to lock your rate if you have a loan in processing.  Additional pressure on bonds is being created by oil prices trading above $120 per barrel again on fears of Hurricane Gustav and how it will affect the 3500 oil drilling platforms in the Gulf of Mexico.  if there is significant damage done to oil drilling operations from Hurricane Gustav, we may see a greater spike in oil next week, creating even more pressure on the bond market.

Lots of uncertainty on the horizon, but prudence may be the word of the day in my advice to lock in and protect from potential loss.

Monday August 18, 2008

Mortgage bonds break above the 25 day moving average.

Mortgage bonds have been moving in a sideways channel for almost a week with strong support levels below it, and the 25 day and 50 day moving averages showing resistance above.  As these moving averages continue the downward slope to catch up with the lack luster market, it is only a matter of time before the charts are forced to move above resistance or below support levels.

Friday, bonds squeaked above the 25 day average then came back down.  And today, they opened above the 25 day, and have been solidly testing the 50 day.  Since there is no economic data due out today, this push for strength in bonds is based almost solely on weakness in Stocks.  With oil making a move back up today, it is very possible that mortgage bonds may close above the 50 day moving average.

If this were to happen, it would be a real positive note for a trend in better mortgage rates to come.  Of course there is more to the market than just trends on a chart.  But, it can be seen as a psychological victory on the part of traders.  Based on this information, it might be advisable to float your rate today to see if you can lock in a slightly lower rate tomorrow.  The choice is yours, but it is worth watching.

The Economics Of McCain Vs. Obama

With so many campaign speeches and TV ads, what is really going on with the positions of the candidates?

Let me qualify this post by saying that I am not a fan of either candidate, and as usual, the presidential election doesn’t come down to the best man for the job; but rather the lesser of the available evils.  If you read this blog, chances are you are in the real estate business, the mortgage business, or you are a consumer looking at a mortgage or buying a home.  Let’s take a look at the positions of the candidates to see where they stand on issues that affect the economy and the real estate business as a whole.

I have heard the Obama campaign accuse McCain of being out of touch, pro big business, pro oil and generally against the plight of the average american.  At the same time, the McCain camp accuses Obama of being an elitist celebrity.  My number one issue in the election is the economy and how they individually plan to address the larger issues facing us domestically.

Taxes

I watched a speech given by Barack Obama where he claimed that it is somehow the duty of the government to step in and impose a “win fall” tax against big oil companies as Americans are struggling financially at the pump and looking for relief while oil companies are making record profits.  On the surface, I thought this was genius as a campaign slogan.  I mean, what American wouldn’t want to stick it to somebody about the current state of gas prices.  But, here is the flip side of that Robin Hood logic.  A business (any business), is in business to make money for it’s shareholders.  It is not criminal to make a profit, nor is it worthy of an apology.  Oil companies are making record profits for their shareholders in the last few years, and those shareholders are….you.  They are your portfolio, your retirement fund, your mutual fund, or any number of places where you can realize a portion of the profits that the evil oil companies are making.

Picking and choosing companies that are making “too much money”, and taxing them punitively for their efforts is as un-American as anything I have ever heard from a politician, in fact, it borders on socialism.  As I was watching this speech, I couldn’t help but notice the roar from the crowd in support of this punitive taxation.  I’m not sure which is more frightening, a presidential candidate blatantly pitching socialism as a way to solve our problems, or a crowd of followers eating it up with a spoon.

I have also seen TV ads accusing McCain of offering big oil companies up to $4 Billion in incentives at a time when they are already making record profits.  i don’t know if those numbers are accurate or not.  But, what they are not telling you in those ads is that the US has one of the highest corporate tax rates in the world, and McCain is in favor of reducing the corporate tax rate from 35% to 25% to keep businesses here and help stimulate growth.  I’m sure that oil companies will benefit from this plan, but so will every business in the country.  For those of you who have seen jobs race oversees to India and China for lower wages, it is because we live in a global economy and businesses are open to make money.  If you over tax businesses, they will not have the money to grow, expand and hire new workers.  By going overseas for this, they help to offset the taxation received in the US, and it is this same taxation that has lead thousands of companies to relocate their headquarters offshore to avoid the over taxation of the current US tax code.

One item that directly affects real estate is the capital gains tax.  Obama is in favor of almost doubling the current tax from 15% to 28%.  This means that if you are a real estate investor, your profits on a house flip will be cut in half.  It also affects the sale of stock, not only in your personal portfolio, but within your mutual funds and retirement accounts.

Based on what I’ve seen, I really have a hard time understanding why a working tax payer would vote for higher taxes.  I know there are other issues in an election such as social programs and obviously the war in Iraq, but volunteering to raise taxes for the sake of “change” seems very much like shooting yourself in the foot.

I’m sure this post will rub some people the wrong way, and that is not my intent.  I just believe that the road to prosperity is through free market capitalism.  You can’t tax your way to prosperity any more than you can borrow your way out of debt.


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Stock Rally Puts Pressure On Mortgage Bonds

Stocks are rallying today sending mortgage bonds lower.

Crude Oil traded below a significant support level around $121 per barrel today, and that triggered bullish sentiments on the stock market.  In addition, Consumer Confidence for June was reported today at 51.9 slightly above the 50.0 that was predicted.  This is not a significant move upward, but it is the first move upward since December.  With oil down and confidence up, traders are pulling money out of bonds and putting it into stocks, and this as you know is not good for mortgage rates.

If you have a loan file in processing currently, I recommend locking your rate on continued volatility in the markets.

Mortgage Bonds Trading Lower On Inflationary Pressure

Mortgage bonds are feeling more pressure today on the heels of comments by the Philadelphia Fed President.

Philadelphia Fed President Charlie Plosser stated today that “inflation is too high”.  Of course whenever the word “inflation” enters into the markets, bond traders sell.  He also added that the Fed must “back up their words with action”.  This is a clear indication that rate hikes in the near future are eminent, and the market seems to agree.

To re-cap – oil prices are based on the US Dollar.  With the lagging value of the dollar being at least one of the prevailing reasons for high prices, one way to help is to increase the value of the dollar.  Increasing the Fed Funds Rate and making money more difficult to borrow is a proven way to strengthen the dollar, and the trickle down affect could very likely lower the price of oil.

Of course, the flip side to this coin is the already struggling credit market where people have had difficulty already in borrowing money with rates where they are now.  While the short term solution may be to shore up the value of the dollar, the long term solution will be to lower our dependence on foreign oil.

For more on our dependance on foreign oil and how we may be able to change it, see my post on The Pickens Plan.

Monday June 30, 2008

European inflation could create problems for us here at home with Mortgages and Real Estate.

It is the last day of June and the first day of the week with news from our friends across the pond creating problems here at home.  Inflation in Europe reported for June is around 4% which is much worse than the expected forecast between 1% and 2%.  As we struggle with our own problems here with the neverending run up on oil prices and a lagging economy, investors are likely to move more money into the Euro and away from the Dollar.

What does this mean for you?  Well, first of all, the price of oil is tied to the US Dollar.  And as we have discussed in previous posts, as the dollar lags behind in the global currency markets, the weakness in the dollar continues to be a contributing factor in the price of oil.  In addition, inflationary pressures keep the FED on the hot seat about raising rates to strengthen the dollar.  While this action would be a short term problem in the real estate and mortgage industry, it would likely be a long term stimulus by strengthening the dollar, lowering the price of oil, and thereby relieving the pressure on consumers and discretionary spending.

The affect this is having on mortgage bond trading today is surprisingly positive.  Not a rally by any means, but not negative either.  My crystal ball is in the shop, so I can’t give you an intelligent answer as to why bonds are moving into positive territory based on this news.  What I can tell you is that if you are working on a mortgage loan currently, you might want to float the rate to wait and see if this market moves above current levels of resistance.

In summary, the economy is very complicated and many factors are contributing to the current uncertainty.  If you are on the fence about buying real estate until it “hits the bottom”, be aware you may lose more than you gain by waiting. Ultimately, if we are to move forward, we will need to experience a little short term pain to feel any long term gain.  You can’t make an omelette without breaking a few eggs.