February 20 2006

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For the week of Feb 20, 2006 --- Vol. 4, Issue 8

Last Week in Review

NOT TOO HOT, NOT TOO COLD…BUT JUST RIGHT! It’s not just for Goldilocks anymore – new Federal Reserve Chairman Ben Bernanke completed his first Congressional testimony with flying colors, as he indicated that the economy looks positive, yet stable…just right. Chairman Bernanke also received high marks for his plain speech, being very clear and understandable throughout his prepared testimony and the grueling Q and A with members of Congress. Some good economic news items this week included a blow-out Retail Sales report, showing that consumers are alive and well…and spending. And housing continues to thrive, as Housing Starts soared 14.5% higher in January, the highest rate for seasonally adjusted new construction starts since March 1973. The continued vibrancy of the national housing market – along with the warmest weather of any January in history – was credited for the record housing numbers. BUT THE “HOUSING BUBBLE” MEDIA HYPE CONTINUES, KEEPING MANY ON THE SIDELINES FROM BUYING THE HOME OF THEIR DREAMS. WHAT WOULD LEGENDARY CONTRARIAN…AND MILLIONAIRE INVESTOR…JOE KENNEDY ADVISE TO TODAY’S POTENTIAL HOME OWNERS? READ ON…DON’T MISS THIS WEEK’S MORTGAGE MARKET VIEW.

Forecast for the Week

Bonds are making a run for it…but will they be able to convincingly escape the “Down Escalator” that has caused home loan rates to rise in recent weeks? Let’s take a look at what’s in store for the week ahead. The two biggest economic news items are likely to be the Fed Meeting Minutes release, which gives the detailed comments made by Fed members during the last meeting; and the Consumer Price Index, which measures inflation at the consumer level. If these two releases reek of inflation…the arch-enemy of Bonds, which have a fixed payment return…it’s possible that they could be forced back onto the “Down Escalator”. But if the news indicates that inflation appears to be contained, Bonds may just continue their climb higher, causing home loan rates to improve slightly. Chart: Fannie Mae 6.0% Mortgage Bond (Friday Feb 17, 2006)

The Mortgage Market View...

CONTRARY TO POPULAR BELIEF…IT PAYS TO BE A CONTRARIAN.Sir John Templeton was known as the “Dean of Investing”, and he was a classic contrarian. Mr. Templeton said to buy when things looked most pessimistic and sell when the masses felt most optimistic – and his attitude paid off. He began his Wall Street career in 1937, created many of the world’s largest and most successful international investment funds, and is now a full time philanthropist at age 92. Some recent examples - stocks were on fire in 2000 and almost everyone was buying, but the market went the opposite direction from the herd. And now over the past four years the media has warned of a housing bubble, but home prices have done very well across the country; rewarding those who bought. With Housing Starts numbers coming out with a bang this past week and the report being higher than expected, it is a clear indication that the demand for housing is still strong. So, what about all this housing bubble hype? Well, if Joe Kennedy – father of former President John F. Kennedy – were still alive, it is pretty clear that he would agree and say that the hype is clearly just that, hype. If we could ask this legendary contrarian and one of the most successful businessmen in history what he would do given the current Housing Starts number and all the bubble hype being published by the media, Mr. Kennedy would probably run…not walk…but run to a local real estate office and invest in real estate. Let's take a look at why Mr. Kennedy would probably feel so strongly about purchasing a home. Joe Kennedy attended Harvard College and became a highly successful entrepreneur with an eye for value. He multiplied his fortune through stock speculation and did so by investing with a very contrarian mindset. In the early to mid 1920’s the majority of the population was reluctant to invest in the stock market. However, Mr. Kennedy became an expert in dealing with a stock market that was unregulated and even opened his own investment company during the bull market of the 1920’s. Joe clearly saw an opportunity and with his keen eye for value, invested in the stock market. By being smart, going against the grain of the majority, and not buying into fear, he bought with confidence and made millions by doing so. But one day, his local shoeshine boy gave him a tip on a stock to buy. Mr. Kennedy immediately cashed out his multi-million dollar gains and got out of the market. He realized that if the market were so oversaturated that even the shoeshine boys were giving out stock tips, it was time to get out. And that’s exactly what he did, just months before the stock market crash in 1929. Looking back, Mr. Kennedy based his investments on facts and statistics, not on fear and hype. And when the housing bubble hype began four years ago, many individuals refused to base their decisions on hype…and have seen sizeable gains with their real estate investments. On the other hand, those who put off purchasing real estate based on the fear induced by the media most probably regret their decision. If you have been putting off the purchase of your dream home, don’t base your decision on fear and hype, meet with your trusted mortgage professional and get the facts about your local real estate market.

The Week's Economic Indicator Calendar

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 February 20 – February 24 Date ET Economic Report For Estimate Actual Prior Impact

The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. 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, there is no guarantee it is not without errors.

As your trusted advisor, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.