This Week’s Market Commentary - May 30, 2011

This holiday-shortened week brings us the release of five important economic reports for the markets to digest. Two of the five are considered to be of very high importance to the bond market and mortgage rates. The remaining reports are considered to be of moderate importance to the markets.

The financial and mortgage markets will be closed today in observance of the Memorial Day holiday and will reopen Tuesday morning.

The Conference Board will start the week’s more important releases by posting their Consumer Confidence Index (CCI) at 10:00 AM Tuesday. This is data measures consumer willingness to spend. If the index rises, it indicates that consumers feel better about their personal financial situations and are more apt to make large purchases. If confidence is sliding, analysts think consumer spending may slow in the near future. The latter is good news for the bond market because consumer spending makes up two-thirds of the U.S. economy. A decline in the index should boost bond prices and push mortgage rates lower Tuesday morning. It is expected to show a reading of 66.3, up from April’s 65.4 reading.

The Institute for Supply Management’s (ISM) manufacturing index will be posted late Wednesday morning. This highly important index measures manufacturer sentiment. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. Analysts are expecting to see a 57.6 reading in this month’s release, meaning that sentiment fell during May. A smaller reading will be good news for the bond market and mortgage shoppers while an unexpected increase could contribute to higher mortgage rates Wednesday.

The revised 1st Quarter Productivity and Costs data is the first of two reports that will be released Thursday morning. This data measures employee output and employer costs for wages and benefits. It is considered to be a measurement of wage inflation. It is believed that the economy can grow with low inflationary pressures when productivity is high. Last month’s preliminary reading revealed a 1.6% increase, but I don’t think this piece of data will have much of an impact on the bond market or mortgage pricing unless it varies greatly from that reading.

The second release of the day will come from the Commerce Department, who will post April’s Factory Orders data during late morning trading. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn’t expected to cause much change in rates this month. Current forecasts are calling for a decline in new orders of 1.0%.

Friday’s sole report is arguably the single most important report that we see each month. The Labor Department will post May’s Employment data early Friday morning. This report gives us key employment readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate remain at 9.0% this month with approximately 185,000 jobs added to the economy during the month. A higher than expected unemployment rate and a smaller number than 185,000 in new payrolls would be great news for the bond market. It would probably create a sizable rally in bonds, leading to lower mortgage rates Friday. However, stronger than expected numbers may lead to a spike in rates Friday morning.

Overall, Wednesday or Friday is likely to be the most important day of the week as they bring us the two most important reports on the agenda. If they give us weaker than expected results, we could close the week with lower mortgage rates than Tuesday’s opening levels. However, if we see stronger than expected readings in those two releases, I expect mortgage rates to move higher on the week.

But that is very much dependent on seeing a relatively calm week in stocks. As we have seen the past two weeks, stock market volatility can heavily influence bond trading and mortgage rates and significantly minimize the impact that these economic reports normally have on rates. Accordingly, it would be wise to maintain contact with your mortgage professional if still floating an interest rate.

5 Things to Think About When Looking for Your Dream Home

While on the hunt for a perfect home, it can be immensely helpful to create a wish list of sorts. This can help you and your real estate agent obtain a clear picture of what type of home would best suit you.

Some things to consider:

1. Move-in ready or fixer-upper?
Making a home “your own” can make fixer-uppers an attractive option, along with the lower cost. Making a mark on your new home via renovations. Take some time to think about what homeownership means to you, and whether you are interested in renovation.

2. Upgrades
Certain upgrades in a home, such as marble or granite counters, are often coveted by buyers. Consider what type of upgrades are important to you – energy-efficiency, professional grade appliances, luxury tiling? Make a list and show your Realtor.

3. The Yard
What type of backyard are you looking for, and how important is it to you? Think about low versus high maintenance yards, the amount of space you’d like, and what kind of yard would best suit your lifestyle.

4. Swimming Pools
For some homebuyers, having a swimming pool can be a dealbreaker. If this is something that you really desire in your dream home, make that clear to your real estate agent so that they can narrow the search for you.

5. Schools in the Area
Last but certainly not least, the quality of the schools in the area of a dream home should be an important thing to research. Ask your Realtor for information about schools in the area of your search, and comparisons between them. This information is easily obtained, and real estate agents will be more than happy to show you school scores and more. Also consider private schools, if that is an option for your family.

The Power of Bona Fide Pre-Approval

While most mortgage lenders offer a form of “pre-approval” for a loan, Princeton Capital is one of the few lenders anywhere that can do an actual fully underwritten loan pre-approval. With our banker and broker business model, pre-approvals for loans are not conditional on multiple minutiae of a transaction.

It is difficult to overestimate the power of a real loan pre-approval and its role in a successful real estate transaction. Pre-approvals make the seller of a house more comfortable about the offer, and in a competitive market, this can make all the difference.

According to Bay Area Realtor Larry Miller of Coldwell Banker, standard practice in the area is that a loan pre-approval accompanies any offer on a home. When the pre-approval comes from Princeton Capital, he is able to give the seller complete confidence that buyer is, in fact, qualified and the transaction will be able to close.  Not so with many other pre-approvals, which are not fully underwritten and thus are only worth the paper they’re printed on.

“If a seller is looking at two different offers, they can feel much more confident with the Princeton Capital one,” said Miller.

The difference between the loan pre-approvals the real estate agent sees from other loan companies and from Princeton Capital is the reliable commitment of the latter that the buyer does indeed qualify.

Looking over pre-approval letters from three diffferent companies, one of which being Princeton Capital, Miller pointed out the extensive conditions on the other letters – one of which included more than eight conditions under which the”pre-approval” was not guaranteed.

“How much confidence can this give you?” asked Miller, in reference to the extensive conditions and lack of guarantees on one pre-approval letter.

A true pre-approval from Princeton Capital gives homebuyers a huge competitive advantage when making an offer on a home, because sellers can be completely confident that the buyer is indeed able to purchase the home, speeding up the transaction and ensuring its success.