Lask week, the Fed signaled that the recession may be easing, and this news was echoed by the Economic Cycle Research Institute (ECRI), who also said that the recession would probably end by the time Summer is over. The ECRI, whose leading indicators have a solid track record of predicting turns in the business cycle, said that enough of its key gauges have turned upward to indicate with certainty that a recovery is coming.
The beleaguered auto industry has been big news of late, and while Chrysler struggled to find "Mr. Right" in Fiat, the price for their flight ended up to be bankruptcy, while on the other hand, it looks like Ford will be all right tonight, as their Stock is up big from just one week ago. What's more, as you can see in the chart below, Stocks in general had a great April. In fact, the S & P 500 had its best month in nine years, gaining 9.4%, led by the financial sector. This is further evidence that the changes in mark-to-market accounting were a great decision.
Chart: S & P 500
In addition, there were several good economic reports to note as Consumer Confidence for April came in at its fourth largest gain in the history of the survey, while Consumer Sentiment also came in better than expected. The improvement in the way consumers are feeling is likely influenced by the improvement in Stock prices.
But Stocks are near an important ceiling of resistance that has been difficult to break. Just like Bonds, Stocks respond to floors of support and ceilings or resistance - and a look at the above chart shows how the level of the S & P 500 between 875 and 880 has put a lid on Stock price advances eight times during the last few months. Interestingly enough, Friday's close was right at that ceiling, at 877.52. Should prices break higher next week, it could lead to another 8% rise in the overall Stock market before the next ceiling is hit. However, should the S & P 500 Index fail to advance further, prices will likely drift down to the nearest floor, about 5% below current levels. That's what makes this pivotal point so important, and worth keeping an eye on in the coming week.
Yet our economy isn't in full bloom just yet. The Advance Gross Domestic Product (GDP) Report showed that the US economy contracted more than expected in the first quarter. The combined contraction of the last two quarters is the worst in more than 60 years. Continuing unemployment claims are still a problem, coming in at a record 6.27M, while the Personal Income and Spending Report showed that consumers are still watching their wallets very carefully.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates to improve, while strong economic news normally has the opposite result. Bonds were buoyed in the beginning of last week due to Stocks losing ground on the swine flu news, but the variety of good economic news gave Stocks a boost later in the week at the expense of Bonds and home loan rates. As a results, Bonds and home loan rates ended the week slightly worse from where they began.
THE GOVERNMENT IS BACK IN ACTION, ATTEMPTING TO MAKE THIS SPRING A BETTER ONE FOR DISTRESSED HOMEOWNERS! CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW FOR DETAILS ON AN UPDATE TO THE MAKING HOME AFFORDABLE PROGRAM.
Forecast for the Week:
The big news to look for this week will be April's Jobs Report, coming out on Friday at 8:30am ET. The anticipation prior to and results of this report will have Stocks teetering along the aforementioend pivotal level of resistance. The direction of Stocks will no doubt influence Bond prices in the opposite direction.
March's Jobs Report had a mix of good and bad news, as the economy lost 663,000 jobs, meaning 5.1 Million jobs have been lost since the recession began in December of 2007. However, for the first time in a very long while, there were no downward revisions to a prior month's reading, as February's number came back with no change. It will be important to see if April's numbers or any revisions to March show if there is indeed some level of stabilization at hand for the labor market.
Remember that the Unemployment Rate tends to be a lagging indicator, but the number of jobs created gives us a current view of the markets. Still on the jobs theme, Thursday's Initial Jobless Claims number - although volatile - gives us a glimpse of what we can anticipate.
As you can see in the chart below, Bond prices and home loan rates worsened this week - but home loan rates are still near historic lows. If we have not talked recently about your home loan situation or future plans, please give me a call or send me an email - let's talk.
Chart: Fannie Mae 4.0% Mortgage Bond (Friday, May 01, 2009)
The Morgage Market View:
Making Home Affordable. The Saga Continues!
In an effort to fill in some of the gaps exposed in the initial Making Home Affordable (MHA) program, Washington has stepped up its efforts to assist more distressed homeowners. In a press release on April 28th, the U.S. Treasury announced an update to the program designed to assist nearly 50% of those homeowners seeking relief from the MHA program.
What's New?
By some estimates, nearly 50% of all struggling homeowners actually have two mortgages. This is because many borrowers chose to split their mortgage in two to avoid an additional Private Mortgage Insurance monthly payment. The problem is, having two mortgages complicates attempts to refinance or modify home loans.
To minimize these complications, the new legislation is intended to assist mortgage servicers with new guidelines that give incentives for participation and help decrease payments for homeowners. These incentives have also been extended to homeowners enrolled in the program to assist them in making their future payments on time.
The news announcement also addressed the Hope for Homeowners (H4H) program created last year. The biggest news relating to H4H is that participating servicers will be required to look at H4H in tandem while considering a loan modification. In order to support more investor participation, incentives will be extended to the servicer and the Treasury will continue their buying program to help rates stay attractive as well.
What Does This Mean for You?
Despite these additional guidelines, the Making Home Affordable program is still best suited for helping a specific group of struggling homeowners.
If you're interested in refinancing or looking into a modification, I'd be happy to help you examine your options. Even if a modification isn't right for you, there may be an opportunity to refinance your mortgage and take advantage of today's historic lows.
