In This Issue…

Last Week in Review: Food and fire for the housing market. Read below to discover what happened.

Forecast for the Week: High-impact reports hit the markets…with the big news coming this Friday!

Special Video View: Don’t pay more than you have to in taxes. Watch this special video now!

Last Week in Review
“A house is not a home unless it contains food and fire for the mind as well as the body.” – Benjamin Franklin. Last week, the housing market received some food and fire for the mind, but not everyone was at home with the news.

First, the good news. The housing market received a serving of good news last week, as New Home Sales reportedly rose 17.5% in December to come in better than expectations. Overall, the report demonstrated that housing continues to recover – albeit slowly. Despite that good news though, the markets were keyed in on another more important event last week: the release of the Fed’s Interest Rate Decision and Monetary Policy Statement.

As expected, the Fed made no change to the Fed Funds Rate and even the Policy Statement was pretty much the same. But that didn’t stop the markets from getting a little fired up about the release. Let’s take a look at why.

It’s important to understand that the Fed has to be very careful with how bullish their economic comments are, as they don’t want to see long-term rates move higher. Well, the Fed’s comments certainly were not bullish as they said “employers remain reluctant to add to payrolls” and “the housing sector remains depressed.”

So why did Bonds initially improve nicely on the news and then crumble later in the day? The answer is, not everyone in the trading pits is buying what the Fed is saying. Instead, some people believe the Fed is talking down the true underlying strength of the economy, so that it can justify injecting the full $600 Billion of Quantitative Easing into the economy.

Speaking of comments that impacted the markets… President Obama delivered his State of the Union Address to members of Congress last week. Although the President’s call for a freeze on discretionary spending for 5 years may appear to be Bond bullish in that any reduction in the deficit would be good for Bonds, the reality is that so much more has to be done to really get our long-term debt in check. And some of last week’s weakness in Bonds was likely attributed to the feeling that the speech came and went without any real sense that the deficit is going to be reduced in a meaningful way, especially in the near term. The Bond market probably would have liked the word “cut” in spending rather than “freeze,” since a “freeze” suggests only a temporary halt in spending at current levels.

In the end, the news last week demonstrated that economic conditions are improving, but they are doing so gradually. As a result, the market remains volatile, as Bonds and home loan rates move up and down depending on what reports or speeches hit the news wires. The good news is that despite the volatility, home loan rates remain extremely low for now and present a tremendous opportunity for buyers who lock in at the opportune moment.

To learn more about the volatility and how you or someone you know can benefit from a knowledgeable advisor like myself, please call or email today. I’ll be happy to discuss the current economic climate and what it means to your unique situation.

Forecast for the Week
 

The markets will continue to watch the political unrest in Egypt closely this week. In addition, a number of high-impact reports will hit this week with the big news coming this Friday!

  • We start off right away Monday morning with reports on Personal Spending and Personal Income, as well as the Personal Consumption Expenditures (PCE) Index, which is the Fed’s favorite gauge of inflation.
  • Manufacturing will also be in the news this week. On Monday, we’ll see the Chicago PMI, which surveys more than 200 Chicago purchasing managers about the manufacturing industry and is a good indicator of overall economic activity. Then on Tuesday, the ISM Index will be released. This is the king of all manufacturing indices and is considered the single best snapshot of the factory sector.
  • The big topic of the week will be employment. First up is the ADP National Employment Report on Wednesday, which measures non-farm private employment.
  • The ADP report will be followed by another round of Initial Jobless Claims on Thursday. In last week’s report, Initial Jobless Claims came in well above expectations. We shouldn’t read too much into that spike, since weather could have played a sizable role in the jump. However, if readings over the next couple weeks don’t settle back down closer to the 400,000 level, there may be reason for concern.
  • Finally, the busy week culminates in the all-important Jobs Report on Friday. This report features new data regarding Non-Farm Payrolls, the Average Work Week, Hourly Earnings and the Unemployment Rate. Needless to say, this report can be a big market mover!

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see in the chart below, Bonds received a bit of a bump at the end of last week, helping home loan rates recover from losses earlier in the week. This boost was prompted by political turmoil in Egypt that had investors seeking the safety of Bonds. As a result, home loan rates are still near historic lows, making this a perfect time to see how you or someone you know can benefit! Call or email today to get started.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Jan 28, 2011)
Japanese Candlestick Chart
The Mortgage Market Guide View…
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The Power of Tax Planning

No one wants to pay more in taxes then they have to. And believe it or not, the tax code actually contains plenty of opportunity to save…but you must plan correctly. Check out this video from Kiplinger.com to put the power of tax planning to work for you.

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Economic Calendar for the Week of January 31 – February 4, 2011

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of January 31 – February 04

Date ET Economic Report For Estimate Actual Prior Impact
Mon. January 31 08:30 Personal Income Dec 0.5%   0.3% Moderate
Mon. January 31 08:30 Personal Spending Dec 0.6%   0.4% Moderate
Mon. January 31 08:30 Personal Consumption Expenditures and Core PCE Dec 0.1%   0.1% HIGH
Mon. January 31 08:30 Personal Consumption Expenditures and Core PCE YOY NA   0.8% HIGH
Mon. January 31 10:00 Chicago PMI Jan 65.0   68.6 HIGH
Tue. February 01 10:00 ISM Index Jan 58.2   57.0 HIGH
Wed. February 02 08:15 ADP National Employment Report Jan 150K   297K HIGH
Thu. February 03 10:00 ISM Services Index Jan 57.0   63.5 Moderate
Thu. February 03 08:30 Jobless Claims (Initial) 1/29 425K   454K Moderate
Thu. February 03 08:30 Productivity Q4 2.2%   2.3% Moderate
Fri. February 04 08:30 Non-farm Payrolls Jan 150K   103K HIGH
Fri. February 04 08:30 Unemployment Rate Jan 9.6%   9.4% HIGH
Fri. February 04 08:30 Average Work Week Jan 34.3   34.3 HIGH
Fri. February 04 08:30 Hourly Earnings Jan 0.2%   0.1% HIGH
The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors.

Kurt Galitski

Meet Kurt Galitski - The Kurt Real Estate Group, your new best friend. Distinctive Strategies that Deliver Record-Setting Results. When you combine Kurt’s passion and knowledge of the real estate market, you really gain an appreciation for what makes Kurt different. But what truly sets him apart from the crowd are his 5 distinctive strategies and his property management… For Kurt, getting into real estate was not an accident, it was a deliberate and calculated decision to deliver a better experience to home buyers, sellers, and landlords that they have ever received before. Today, you could ask any one of hundreds of clients, read his Yelp reviews, or look at his track record of being featured in Orange Coast Magazine in excess of eight consecu­tive years and you too will say mission accomplished. www.KurtRealEstate.com www.KurtPropertyManagement.com 877-957-6677

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