The Mortgage Reports Blog

What Mexico and Australia Have In Common With Illinois And Ohio

I first saw this graphic in early 2007, courtesy of Barry Ritholtz.  I had always meant to include it here along with some commentary, but forgot about it.

How timely that Greg Swann sent it my way this weekend.  I've been talking so much about the simulateously sagging and strong U.S. economy and I forgot to put our economy in a global context.

As 27 percent of the world's economy, we're large.

What you are looking at above is a map that looks at the economic size of every state in the union, and then replaces that state name with a country name of a comparable-sized economy.

Mecixo equals Illinois.  Korea is Florida.  Australia and Ohio are the same as are France and California. 

If you didn't know why global markets are overly concerned with U.S. credit markets, now you do.  In particular, nations are worried about a spillover from sagging U.S. housing reching into the rest of the economy. 

If the United States begins to show signs of a slowdown, it could be a tremendous drag on the entire world's economy and that is one reason why nations are divesting from the U.S. dollar.

Bonus Section:

The astute may have noticed that a few countries are missing from the chart:

• Japan ($4.3 trillion)
• Germany ($2.9 trillion)
• China ($2.7 trillion)
• United Kingdom ($2.3 trillion)

Well, even combined, those nations' economies are still less than the U.S.'s $13.3 trillion output.  Like I said, we're large.

Sources
List of countries by GDP (Nominal)
Wikipedia

Gross Domestic Product By State, 2006
Bureau of Economic Analysis

Happy Anniversary, Flux Capacitor

It was 52 years ago today that Emmitt Brown conceived the Flux Capacitor.

But, unless your name is Marty McFly, you may not have simple access to economic data from this important date in history. 

So, in the interest of fun, let's compare data between 1955 and 2007 to see just how far we've come as an economy since then.

Total Non-Farm Workforce:

• November 5, 1955: 49.9 million
• November 5, 2007: 146 million

Gross Domestic Product:

• November 5, 1955: $391 billion
• November 5, 2007: $13,227 billion

Fed Funds Rate:

• November 5, 1955: 2.250%
• November 5, 2007: 4.500%

3-Month Treasury Bill:

• November 5, 1955: 2.179%
• November 5, 2007: 3.60%

Happy anniversary, Doc.  Here's a t-shirt for you.  And remember to save the clock tower.

(Images courtesy: Outatime)

McPaper Puts Three Quality Stories In The Money Section

I'm not a huge reader of USA Today, but I happen to be at hotel on Long Island this morning and McPaper showed up at my door this morning.

Surprising to me, there are a few interesting stories in the Money section.  So, as we usually do, let's relate them to mortgage rates.

World events work against grain buyers
Bad weather and surging global demand has created the tightest grain stock in 30 years.  Wheat prices are skyrocketing food companies have a choice -- absorb the costs, or pass them on to consumer?  Either way, mortgage rates should benefit because less dollars are being spent on capital and/or consumer goods.  A slowing economy retards inflation.

Fed chief's outlook: 'Uncertain'
Ben Bernanke says that housing is likely to be a significant drag on the economy through early 2008, and that conditions in financial markets have improved since "the worst of the storm" in mid-August.  Half of Bernanke's job is to help keep markets calm so this speech may have been a giant preview for the October 30-31 FOMC meeting. 

Oil surges to record, but gas prices don't follow suit
As with wheat prices, it's only a matter of time before producers pass on rising costs to consumers.  One major storm or cold spell and prices could rise not only at the pump, but in our homes as well.  This normally pushes mortgage rates lower because higher costs forces disposable income to drop, thereby slowing the economy.

Justin Timberlake and Scott Wolf dine at Mawat; Unaware of Mortgage Planner Dan Green
Okay, this story didn't show up in USA Today, but it happened.  I wondered why it took nine waiters to serve that table next to me until I looked over.  Neither was impressed with my new haircut.

That's all, folks.  Bring it on in to Omeletteville.

The Dow's Bounce : Back Above 14,000

One look at this chart and I wonder:

1. Long-term investing is a viable investment strategy
2. You can't time the market
3. Those that forget the past are condemned to repeat it
4. So much for the "Economy Is Going Sour" theory
5. This could be the hugest dead-cat bounce ever

Or, maybe markets are just like life: a series of events that appear to have meaning at the time, but are irrelevant over the course of 90 years. 

It's only when life ends that we realize the truly significant moments were the ones that seemed strangely ordinary at the time.

(Image courtesy: Wall Street Journal Online)

A Homeowner Who Is Truly Upside-Down On His Home

President Bush is in the headlines this morning, trying to relieve Americans in mortgage trouble using FHA- and Fannie/Freddie-based solutions. 

Rather than debate the merits of the pan, let's take some time to reflect upon a homeowner who is truly "upside-down" in his property.

The above photograph is of Daniel Czapiewski's tourist attraction in the Polish village of Szymbark.  Rumor has it that his last remortgage attempt was denied in Appraisal Review for lack of comparable properties.

(Image courtesy: Neatorama)

To Know Where Mortgage Rates Are Moving, Watch The Proper Indicators

If you're a first-time reader, here's the first thing you get to learn at The Mortgage Reports:

Mortgage interest rates are determined by the price of mortgage bonds.  Nothing else, nothing more. 

If mortgage bond prices are down, mortgage rates will be higher.  If mortgage bond prices are up, mortgage rates will be lower.

That's it.  Pretty basic stuff.  Except that mortgage bond pricing information is not very accessible to the general public. 

This includes the press.

Because the mortgage-backed bond market is somewhat foreign to the media, a lot of them use a government bond called the "10-Year Treasury Note" when predicting where mortgage rates will go.  The 10-Year Treasury Note is very easy to follow because it's accessible -- just turn on CNBC or Bloomberg and you'll see it in the ticker.

And, usually, it's okay to use the 10-Year Treasury Note as a predictor of mortgage rates because the two tend to move in the same direction.  But there's no direct correlation between them.

It would be like saying that Microsoft will trade higher because Google beat its earning estimates.  Sometimes, Google will pull up the whole Technology sector, but there are plenty of days when it doesn't.

It's like dreaming about Gorgonzola cheese when it's clearly Brie time.

Unfortunately for mortgage rate shoppers, a lot of loan officers don't get the difference.  They, too, will use the 10-Year Treasury Note as a mortgage rate benchmark.  Again, most days it works, some days it doesn't.

Yesterday was one of those days.

At one point, mortgage rates were getting killed (down 19 basis points) while the 10-year treasuries were thriving (up 53 basis points).  Into the afternoon -- even as the 10-year treasury note extended its gain to 100 basis points -- mortgage bonds had barely recovered to flat.

If your eyes were on the wrong indicator, you would have expected mortgage rates to fall yesterday.  They didn't.  And this same divergence has occurred several times in August.

For people watching the wrong indicator, it may have led to costly rate lock errors.

The only security to watch with respect to mortgage rates each day is the price of mortgage-backed securities.  And if you didn't get the message this time, stick around and I'm sure I'll bring it up again sometime soon.

Will You Be Stranded At The Closing Table With No Mortgage Money?

This week, several high-profile companies stopped funding mortgage loans including ABC, American Home Mortgage, mTeam Financial, and HLB.

What to do if you are a home buyer:

• Call your loan officer
• Confirm that your mortgage approval is not impacted

What to do if you are a home seller under contract:

• Call your real estate agent, attorney, or whomever
• Find out if your buyer's mortgage approval is impacted

What to do if you get "bad news" that your loan won't fund:

• Work with your loan officer to find a new solution
• Be flexible -- the mortgage industry is changing and this is not your loan officer's fault
• Understand that your rate and/or fees may be higher with your new loan

What to do if you loan officer's company shut down completely:

• Remain calm.  You likely have options and there is a solution.
• Email me with a few of your purchase details including (1) purchase price, (2) the loan size, (3) the expected closing date, and (4) property address
• Give me an hour or so to get back to you.  If I can't help you in your state, I will refer you to somebody that can help you and whom I trust.

Even if your closing is this afternoon and even if you are cleared-to-close, make the call.  More than $1 billion in home loans will go unfunded today (if my math is correct).

CBS News Story On "Trigger Leads" Evokes Strong Emotions

From the CBS News Video Web site, an interesting story for anyone who's recently applied for mortgage credit.

The three major credit bureaus -- Experian, Equifax, and TransUnion -- sell the contact information of new mortgage loan applicants to other mortgage lenders that want to compete for the same business.

It works like this:

• You call your loan officer for a rate quote
• Your loan officer submits a credit report to the credit bureaus
• The credit bureaus recognize that you are applying for a mortgage loan
• The credit bureaus sell your financial information to other loan officers around the country
• The other loan officers call you at your home with new offers for credit

Called "trigger leads", this system of lead marketing identifies a person making a lending decision right now. It's no wonder that lenders are salivating over them.  One marketer of trigger leads calls them "the best leads in the business". 

Trigger lead critics cite privacy concerns as a major problem but supporters of the system say that the risk is offset by giving consumers more choices in lending and, therefore, better prices.

As the family in the CBS video learned, however, it's difficult to get the phone to stop ringing once it starts.  Some of the calls bordered on harassment.  It makes me embarrassed for my industry, actually.

Consumers can stop the calls before they start, if they choose. 

There is a very low-tech, opt-out Web site called http://www.optoutprescreen.com that is sponsored by the three major credit bureaus.  On the site, you can opt yourself out from credit offerings for five years, or submit a form by mail to opt out forever.

Watch the video and then go protect yourself (if you're so inclined).

(Image courtesy: CBS News Video)

Is There Statistical Insignificance In The Jobs Report?

According to the Bureau of Labor and Statistics' press release today, the following is true (but subject to revision in August and September):

• 132,000 new jobs were created in June versus expectations of 120,000
• 33,000 more jobs were created in May than previously measured
• 42,000 more jobs were created in April than previously measured

So, in total, today's overall "surprise" was 87,000, measured against the total number of employed people (also in the BLS release) of 146,100,000.  In percentage terms, that's just 0.059548% of the overall workforce.

The revisions are statistically insignificant, especially considering that government press releases don't go beyond tenths with respect to decimal places.  If revision percentages were included in a government release, it would read something like this:

"Revisions to non-farm payroll jobs from months prior added 0.0% to the total number of employed persons".

Want to put 0.059548% in mathematical perspective?

• It's adding one more square foot to Zaremba's Harbor Walk Townhomes in Colorado
• It's adding one more seat to Krenzler Stadium in Cleveland
• It's adding one more pixel of width to this handsome guy's photograph

And yet, mortgage rates are higher today and economists are out chirping about ongoing economic strength.

To economists and traders, the "adding one more" makes an important difference so maybe we should all look at this as just one more example of how investor psychology can sometimes be more important that logical data analysis.

Did You Notice: Markets Barely Reacted To Terrorism

Last week's terrorist attacks in England barely moved markets in a surprising change from past attacks worldwide.

Even as the country remains in "Criticial Alert" status, money is flowing to the U.K. on remarks from the Bank of England, and a foreshadowed interest rate increase.

In the past, terrorism was considered a threat to financial markets and one that created Safe Haven Buying.  Right now, not so much.  So, one of two things is happening:

1. Markets have already priced in the threat of terrorist attacks on the nation
2. Markets are unconcerned with threats and only concerned with real action and damage

Either way, the global non-reaction should change our perspective of how mortgage rates will respond if the United States faces a similar threat in the future.

Source
Country on highest alert after carnage averted
The Sydney Morning Herald
James Button
July 2, 2007, 6:29 A.M.
http://www.smh.com.au/news/world/britain-in-grip-of-terror/2007/07/02/1183228964665.html

(Image courtesy: Sydney Morning Herald)

13 Pieces Of Trivia About The Constitution That Would Make Cliff Clavin Proud

In honor of Independence Day, here are 13 little-known bits of trivia about the United States constitution, courtesy of constitutionfacts.com:

1. The first constitution was not known as the Declaration of Independence.  It was called the Articles of Confederation.
2. The U.S. Constitution has 4,400 words. It is the oldest and shortest written Constitution of any major government in the world.
3. There are spelling errors throughout the Constitution, but the misspelling of the word "Pensylvania" above the signers’ names is a notable one.
4. Thomas Jefferson did not sign the Constitution. He was in France during the Convention, where he served as the U.S. minister.
5. The Constitution was "penned" by Jacob Shallus, a Pennsylvania General Assembly clerk, for a fee of $30.
6. The entire Constitution is displayed in public just one day a year -- September 17.  This is the anniversary of the day the framers signed the document.
7. Patrick Henry was elected as a delegate to the Constitutional Convention, but declined, because he "smelt a rat."
8. The oldest person to sign the Constitution was Benjamin Franklin (81). The youngest was Jonathan Dayton of New Jersey (26).
9. When the Constitution was signed, Philadelphia was the nation’s largest city, with 40,000 inhabitants.
10. Because of his poor health, Benjamin Franklin needed help to sign the Constitution. As he did so, tears streamed down his face.
11. The first time the formal term "The United States of America" was used was in the Declaration of Independence.
12. There was initially a question as to how to address the President. The Senate proposed that he be addressed as "His Highness the President of the United States of America and Protector of their Liberties." Both the House of Representatives and the Senate compromised on the use of "President of the United States."
13. The word "democracy" does not appear once in the Constitution.

Have a safe and happy July 4th, everyone.

Source
Fascinating Facts about the U.S. Constitution
https://www.constitutionfacts.com/index.cfm?section=constitution&page=fascinatingFacts.cfm

How To Buy A Home In San Fernando Valley For $75,000

This Sunday, the Chicago Tribune ran a string of fantastic articles in the real estate and business sections.  I probably won't get to highlight them all this week, but one little tidbit from Mary Umberger made me chuckle.

Author's note: If you didn't know, the Personal Finance articles in the Sunday Trib are worth the price of admission.  All of the author paint fair and accurate pictures and avoid the "scare tactics" so prevalent in other papers.  If you live in Chicagoland, get yourself a Sunday subscription, or stop by your local Dominick's once weekly.

As Mary tells it, a guy in LA sold the rights to wrap his home in the same way that people sell the rights to wrap their cars. 

His booty?  $75,000.

Swedish VoIP company Rebtel paid the home's owner for the right to brand his home for "several months".  You can see the picture at right.

I am not sure how the blue color fits in with the neighborhood, but you have to give the homeowner credit -- this is one way to earn a passive income on real estate.

Not one to leave well enough alone, the homeowner next launched a Web site so he can now act as an agent for others that want to see their homes wrapped.  I know I'm not the target market here, but you'd think that with $75,000 at his disposal, the Web site would look a little less schlocky, right?

(Image courtesy: Business Week)

How New Zealand Tipped The Waiter

Whenever financial markets unravel, everybody wants to ID the catalyst.  This is what caused the market to crash, or that is the reason why the markets is stinky.

Sorry to report -- markets don't crash on a single piece of news.  Don't believe for a second that New Zealand is the reason why the world is fleeing from U.S. mortgage-backed securities like cats from the Westminster Kennel Club.

And yet, that's what some pundits went on record with last Thursday when markets had their worst day in three years. 

Actually, I think somebody in the know went on record with the New Zealand bit early and then everyone else -- perhaps looking for that single reason -- jumped on the bandwagon.  It seemed like a plausible reason.

But was it?

The real story of why mortgage bonds tanked following the news from New Zealand is one that we talk about a lot over here at The Mortgage Reports.  The global economy is one big balancing act.

Growing up, I used to love the game Don't Tip The Waiter.  The waiter was this cardboard thingy balanced on a rocking chair-like base.  The object was to load as many dishes, plates, and dollar bills onto his server's plate without causing the rocking chair to pitch too far forward or backward.

If the waiter "tipped", all of the dishes fell and you lost the game.  Think "Jenga" but so much cooler for a 5-year old.

This is why the New Zealand explanation is bogus.  It's not the last event that happened before the crash, it the combination of every event leading up to and including the crash.

New Zealand merely "tipped the waiter".

How Florida Could Change The Nation's Foreclosure Landscape

This graphic comes from The Wall Street Journal (subscription required) and highlights how property taxes have increased across the nation since the turn of the century.

The actual story focused on Florida and its intention to offer $6 billion in annual tax relief to its homeowners.  And, as civic-minded people knows, the towns of Florida depend on those tax dollars for basic services like education, police and utilities.

Debating the merits of tax relief, author Mark Whitehouse hypothesizes:

"Reducing property-tax revenues would be painful for the cities and counties that depend on them to fill their coffers. But, by leaving taxpayers with more money to spend, a property-tax cut could stimulate the economy of a state that has become the epicenter of the housing bust."

Despite the "hey-let's-take-a-chance-and-hope-we're-right" approach, I like this quote because it runs completely counter to everything that we've heard in the past from state and local governments.

(Well, at least here in Chicago.)

As longtime readers of The Mortgage Reports know, I opine about how rising tax bills relate to foreclosures quite a bit. 

In Florida, where a flurry of homes purchased in the last five years are only now being re-assessed, my hypothesis seems to holding true. 

Foreclosures are above the national average in the Sunshine State.

There are other factors driving Florida's tax bill relief plan, but at its core, this push from the state legislature is an interesting study in economics. 

At least in public, government officials have stated that tax relief may "send a sonic boom" through the slumping Florida economy.

In other words, cut taxes to spur spending, which then generates more tax receipts on consumers and on businesses.  Everybody wins.

It's a novel concept and one that could starve municipalities of much-needed cash in teh short-run.  But, by the same token, it could reduce foreclosures and be a model for the rest of the nation long-term.

Source
Florida Hones Plan To Overhaul Property Taxes
Mark Whitehouse
The Wall Street Journal, May 29, 2007
http://online.wsj.com/article/SB118040150078616731.html

It's May So Non-Cook County Residents May Need To Bring A LOT Of Money To The Closing Table

Quick note to residents of non-Cook County residents in Chicagoland: your next tax bill is due June 1. 

The upcoming payment takes on added significance if you're in the middle of a refinance and you are planning to escrow, though.  Heads up!  Your cash required for closing may be significantly higher than what you expect.

Here's why.

Your new lender wants ample reserves in order to pay your June 1 real estate tax bill for you, and your subsequent bill September 1.

Therefore, they will require you to populate your new escrow account with 11 months of "T&I" (taxes & insurance).

(A quick Escrow Reserve Chart for all Chicagoland counties not named Cook is at right.)

On June 1, your new lender will disburse 6 months worth of reserves to pay your bill, leaving you with 5 months left in your escrow account.

When your July 1 mortgage payment is made, it adds one month to the reserve pile.  In August, your payment adds one more. 

By then, you will have 7 months worth of reserves in the account.

Now, sometime towards the end of August, your new lender will pay your tax bill and you will be left with somewhere around one month's worth of reserves.  This is because tax bills tend to go up over time and if your individual bill was higher than anticipated, that extra reserve month may have been spent.

In September, with each mortgage payment, you'll start building your reserves again -- one month at a time -- to get ready for the following June.  That's when the lender will pay your real estate taxes for you again.

Now, back to the May closing.

When a home loan closes in May, the first payment on that home loan is made in July (in most cases).  According to the chart above, that means that -- at closing -- the borrower is required to bring 11 months of reserves to the table.

11 months of reserves is a lot of money!  It can be a huge imposition on a family that wasn't prepared to make that sort of payment in one lump sum -- especially if they live in a county like Will County where taxes can exceed 2 percent of a home's value.

The good news is, though, that paying the 11 months in advance is only a temporary strain.  Shortly after your closing, the former lender will refund whatever existing escrow reserve was held with them. 

Of course, that doesn't help today with the 11 months worth of cash-to-close.

If you plan to escrow your taxes and insurance and don't have the money required to populate your new account, make sure to talk with your lender prior to closing.  With enough advance notice, your lender can make accommodations to help you out.

As GM Says Sub-Prime Lending Is Hurting Sales, Toyota Posts Its Best Month Ever

This quip yesterday from the Washington Post story, GM's Lutz says mortgage 'meltdown' hits auto sales:

[GM Vice Chairman Bob Lutz] expected the whole automotive sector would feel the impact of the stress on the housing finance market.

"The market as a whole has been a little weakish... as a result of the housing market problems and the mortgage industry meltdown."

Monday's comments from Lutz followed other cautionary remarks from GM executives on the expected impact from the subprime mortgage crisis on the world's largest automaker.

Then, today's headline about a GM competitor : Toyota Reports Best Sales Ever.

"Toyota today reported all-time best-ever monthly sales of 242,675 vehicles, an increase of 7.7 percent over March 2006."

Nothing has changed since yesterday in the sub-prime lending arena, so what gives?  Why is GM saying that the housing market will hurts its sales hurt while Toyota posted its best month ever?

Clearly, there is more to this analysis.

The issue with GM (and Ford and Chrysler, for that matter) is not that sub-prime mortgage lending is hurting car sales -- Toyota can refute that claim on its own.  The issue is the same issue as anything in sales: People want to buy a good product at a fair price.

Vacation Reruns: If Pi Was CPI, It Would Be 3.1

I am on vacation, but that doesn't mean you should have be deprived of good reading.  I am re-posting some of my favorites from the past few months on auto-pilot this week.  New material will resume Tuesday, April 17, 2007.

Original post: If Pi Was CPI, It Would Be 3.1

Original date: February 22, 2007

Excerpt:

A little known fact about yesterday's CPI numbers: they weren't as inflationary as you would have otherwise thought.  It all comes down to decimals and rounding.

What The Headlines Reported

• CPI: 0.2% increase in January
• Core CPI: 0.3% increase in January

What The Actual Figures Were

• CPI: 0.174% increase in January
• Core CPI: 0.256% increase in January

Annual Impact of Decimal Rounding

• CPI: 0.312% increase to CPI
• Core CPI: 0.528% increase to Core CPI

Those annual figures are astounding (and extremely dangerous).

The rounding from three decimals places to one really warps the interpretation of the data.  After all, without three decimal reporting, Ty Cobb is a career .4 hitter and Ted Williams is no more special than Ginger Beaumont at .3.

Enjoy the reruns.  I'll be back soon.

Is Bigger Really Better At Tax Time?

The Justice Department is pressuring national tax-preparer Jackson Hewitt to close down 125 of its tax preparation stores.  Allegedly, these stores stole $70 million from the IRS. 

Each store is owned, or partially owned, by the same franchisor and are spread across four separate states.

The tax stores and its owner are accused of using fake W-2s, bogus deductions and other fraudulent claims to reduce the tax liabilities of its clients, and also of paying kickbacks to store managers and employees.

I am highlighting this story because income tax preparation is similar to mortgage planning in several ways:

1. It's not One Size Fits All -- each individual needs individual counseling
2. It's a crucial part of a person's short- and long-term financial plans
3. There are plenty of low-cost providers in the marketplace

I am not picking on Jackson Hewitt -- these stores targeted by the DOJ represent just 2% of the corporation's total franchises -- but this is a terrific example of how fraud permeates every level of every business, no matter how big or small.

There will be huge penalties for the franchise owner, but the penalties will be worse for the individuals whose tax returns will need to be amended.  Corporations have insurance and can declare bankruptcy. 

Tax penalties and liens can hurt an individual forever.

At this time of year, I get a big kick out of watching tax stores pop-up, and then fade away beginning April 15.  It creaes the notion that taxes are a seasonal thing when we all know that the reverse is true.

Taxes and tax planning is an all-year thing. 

If your accountant is a temporary employee who only works from January 1 - April 15, that should tell you something.

Look.  You are going to pay for your accounting, one way or another so make the choice to make taxes a bigger part of your plan.  It's best to work with a trusted accountant that can help you plan for the long-term and fit your tax strategy into your overall financial plan.

Need a referral?  Just ask.

Source
Jackson Hewitt accused of tax fraud in IL., 3 other states
Crain's Chicago Business, April 4, 2007
http://chicagobusiness.com/cgi-bin/news.pl?rssFeed=news&id=24475

Update: Mortgages Not Outlawed by Congress

My sources updated me.  They said: "April Fools!"

Report from Washington: Mortgages Outlawed?

I just got a phone call from a source in Washington who is close to the ongoing mortgage industry hearings. My contact told me that Congress is convening to decide the "legality of mortgages" and the future of mortgages in this country.

No details were available, but Congress is in serious discussions to ban all mortgage lending in the United States because of fraud and foreclosure risks.

Congress believes that mortgages pose too much of a threat to our nation's financial markets.

As soon as I get more details, I will let you know.

P.S.  April Fools!

Three Housing Headines, Three Misleading Statements

As a consumer, it's very easy to be misled by newspaper headlines.  Today provided a great example, the third in a series of stories about housing.

"New-Home Sales in U.S. Fell 3.9% to 848,000 Pace in February"

This would normally be bad news except that the Margin of Error in the survey was 17.4%.  That means that the data read could have just as easily been -21.3% as it could have been +13.5%.

The Commerce Department doesn't try to hide this, either.  At the bottom of Page 1 of their report -- not obscured in the least bit -- it's written that there is insufficient "statistical evidence to conclude that the actual change is different from zero".

Because the Margin of Error exceeds the measurement, the data measured is worthless.  The headline could have read "13.5% Gain In New Home Sales" and that would have been "true", too.

(Author's Note: If you want to know more about how Margin of Error works, check Google and find an answer that suits you.  Or, just trust me on it.)

So, today's data is misleading.  But, did you see happen to see last Friday's headlines?

"Sales of Existing Homes Up 3.9% For The Biggest Monthly Gains In Three Years"

Missed in the headline (again) was that total inventory rose, too, by 5.9%, adding more supply to the market than for which there is demand.  More supply pushes prices down and -- voila! -- the median sale price was down 1.3% from February 2006.

The headline spins positive, but the real data is neutral.

And, because things always happen in threes, did you see last Monday?  This headline made it to your preferred news source, I am sure:

"9% Jump in New Home Construction". 

The headline was then followed by an article highlighting strength in the housing sector because more homes are being built. 

What was not in the article?  That the Housing Starts survey's Margin of Error was 10.2% and that rendered this data worthless, too.

Housing may be strong or housing may be weak.  But, most likely, housing is both of these things.  It all depends on your particular street because all real estate is local.  Either way, look deeper than the headlines -- there's always more to the story.

Monday Market Notes

A few casual observations on the market over the past few days:

Observation #1: Alan Greenspan has really lost his juice. 

The Maestro says in plain English that a recession is possible -- nay, likely -- and the markets barely bat an eye.  This is the man that once moved markets with a single word.  This reminds me of when Stan Ross stepped back in the batting box after nine years.  He looked the same, but the fear he invoked in others was gone.

Observation #2: Iran is a mortgage rate wild card

Iran has said that they can't "turn off" the nuclear program that they've started.  Some folks in international political circles think that the United States is planning a strike.  This is creating a subtle flight-to-quality in the markets right now and is putting downward pressure on mortgage rates.

Observation #3: Sub-prime lending fears are misdirected

Sub-prime lending is getting a ton of press right now but the focus is on credit quality and the "contagion" into other lending market.  It won't happen.  More importantly, the Human Interest story is getting missed.  There will be more than a few tales of homeowners that couldn't remortgage out of their adjusting mortgages because their individual credit profile is no longer served by Wall Street.

Observation #4: Humiliation can be a great teacher

If the airline industry can be embarrassed into self-regulating, why not the mortgage industry?

If Pi Was CPI, It Would Be 3.1

A little known fact about yesterday's CPI numbers: they weren't as inflationary as you would have otherwise thought.  It all comes down to decimals and rounding.

What The Headlines Reported

• CPI: 0.2% increase in January
• Core CPI: 0.3% increase in January

What The Actual Figures Were

• CPI: 0.174% increase in January
• Core CPI: 0.256% increase in January

Annual Impact of Decimal Rounding

• CPI: 0.312% increase to CPI
• Core CPI: 0.528% increase to Core CPI

Those annual figures are astounding (and extremely dangerous).

The rounding from three decimals places to one really warps the interpretation of the data.  After all, without three decimal reporting, Ty Cobb is a career .4 hitter and Ted Williams is no more special than Ginger Beaumont at .3.

Interpreting economic growth requires precision and the current rounding-in-reporting method is anything but. 

Chicago Tribune Covers Blogging in Real Estate

Mary Umberger of the Chicago Tribune wrote an interesting piece on blogging in Real Estate today. 

The story headlines the Business section and is titled "Real estate agents hang blogging signs".

In addition to citing this blog, The Mortgage Reports, Mrs. Umberger exposes a few of my favorite local bloggers to the masses:

• Jeff Kerr of ChitownLiving.com
• Fran Bailey of Chicago Metro Area Real Estate
• Joe Zekas of Yo! Chicago

All three are in my blogroll so these shouldn't be new names.

Also interesting is that the article included coverage of Teresa Boardman's St. Paul Real Estate Blog.  Teresa is among the best and it's nice to see her get some local coverage here in Chicago.

I wonder if I should find it odd that the article cited four other bloggers and I know them all on a first-name basis?  It must be a small world after all.

Why Gas Prices Aren't Falling As Fast As Oil, or Three Versions of the Truth

The Today Show on NBC ran an interesting graphic yesterday morning that is deserving of some extra attention.  I couldn't find it on their Web site, so the above chart from Gas Buddy will have to do. 

The story's headline was: "Why aren't gas prices falling faster?" and was reported by Carl Quintanilla.  Its gist was that oil prices raced higher this summer, taking gasoline prices with them.  Why, then, is it not working the same way on the way down?

NBC said that in the period of February-April 2006, oil prices jumped by 17% and gasoline by 31%.  But, from November 2006-January 2007, oil dropped by about 12% and gasoline by "a penny".

BUT! What about the missing six months in between? 

According to my math, from the "missing dates" of April 2006 to November 2006, oil prices fell 16.5%; gasoline fell 22.6%. 

I am not sure why NBC didn't report it and this post is not meant to belittle the story, the reporter, or the network.  It's meant to remind my readers to go deeper on just the "headline".

I'll admit it.  When I started this story, I was planning to highlight the NBC angle and support it with broader facts.  And then when I tried, I couldn't.  The more I dug, the more I realized that the NBC story was loaded with facts and quotes to support its headline theme that "people are getting ripped by gas station owners".

Look at the chart to the right (and click it if you don't have hawk eyes).

The graph shows how oil prices and gas prices have moved in the last 3 years, not just select time periods within that 3 years.

So, as I see it, one version of the truth in the NBC story is that over a 3-year period, crude oil prices accelerated much more quickly than did the price of gasoline.  It would seem only natural that they would decelerate much more quickly, too, in order to return to a balanced level.

Another version of the truth is that rising oil prices gets the attention of Capitol Hill and that puts pressure on gasoline purveyors to keep prices low, despite the economics of the situation.  That is why the spread between "blue" and "red" was so wide this summer, and if you don't believe this happens, just think back to the public outcry about "fuel surcharges" this past summer on everything from UPS shipments to airline tickets.

And, yet another version of the truth is the one that NBC provides.  That gas station operators collude to make huge profits at the expense of everyday people like me and you. 

The real truth is probably somewhere in between but one thing is for certain: oil prices are falling and gasoline prices are falling, too.  And that's a fact, Jack.

Why Market Closings for President Ford's Death Will Not Impact Rate Locks

In observance of President Ford's death, the NYSE, NASDAQ and the Federal Reserve Board will be closed Tuesday.  Markets will be closed for four consecutive days for the first time since the days following the attacks on September 11, 2001.

Even though the markets and the Federal Reserve Board will be closed, the Federal Reserve's regional banks will continue to operate as usual.  This matters to you because it means that money can still be wired between bank accounts and to title/escrow companies.

In other words, even though it will appear that monetary services are shut down for a day, mortgage loans will still be able to be funded.  Rate locks expiring on, and purchase closings scheduled for January 2 are not in any sort of danger whatsoever.

In addition, January 2 will still count as a rescission day for remortgages of primary and secondary homes.

Be Wary Of A Friday Closing This Week -- It's Quadruple Mortgage Witching Day (Quintuple in Chicago)

As a follow-up to our hugely popular post last month "When Not to Schedule Real Estate Closings", I just want to remind everyone that the perfect storm is on its way this week.

This coming Friday is:

1. The last Friday in the month
2. The last day of the month. 
3. It's the summer
4. It's the Friday prior to July 4th weekend.

Think about how many people you know that are leaving early this week to head to the shore, or beach, or wherever they go in your parts of the country. 

A lot of them, right?

There can be as many as 20 people involved in the purchase/sale of a home, so if your closing this Friday, try to schedule it for as early in the day as possible.  Many of them are probably leaving town early this week, too.

From the above-referenced entry:

It's because title companies are like airports.  At an airport, planes are always trying to land.  It takes a complex system of organization to make sure that every plane lands on time.  If a plane landing early in the morning has some trouble, it throws off the timing of every landing later in the day.

Witness a busy airport on Thanksgiving.

In this little metaphor, the title company is the airport, and the closings are the planes.  If a morning closing has problems, it will throw off the timing of the afternoon closings.  And the more closings scheduled that day, the worse the timing problem becomes as the day goes on.

The biggest difference between a title company and an airport, though, is that the airport won't close at 5:00 P.M. on the button.

Be ready for trouble Friday -- even if your purchase closing is expected to be smooth.  Friday is the Perfect Storm (but without the bad Boston accents).

For Chicagoans, there is an added spat of terrible timing. 

Friday, the Cubs are playing the White Sox at Wrigley for an afternoon match-up.  Game time is 1:20 P.M.  Chicago will be seriously shut down beginning at noon for the rarest of the rare -- the Quadruple Mortgage Witching. 

Suddenly, caveat emptor takes on a whole new meaning.

How Alaska Stands Apart From The Mainland (And Hawaii)

The Mortgage Academy Web site has an interesting chart that lists mortgage licensing requirements, state-by-state.

Did you know that Alaska is the only state of the 50 United States that does not regulate the mortgage industry?

Even though the Alaska state regulators investigate more than 20 mortgage-related calls weekly, the state legislature recently voted down a bill that to give the Alaska Division of Banking and Securities authority to license and regulate mortgage lending firms.

See how your home state regulates loan officers.

Source
Alaska the only state that doesn't regulate the mortgage industry
Anchorage Daily News; June 11, 2006, 4:18 P.M.
http://www.adn.com/news/alaska/ap_alaska/story/7847060p-7740802c.html