A LITTLE RUMOR GOES A LONG WAY…and last week, rumors highly influenced Mortgage Bonds and home loan rates. The weak US Dollar has taken center stage in market news lately, and interestingly enough, whispers about the Dollar actually caused more market movement than any actual economic reports for the week. What happened? Let’s take a closer look.

Two strong indicators – the Producer Price Index and Consumer Price Index – were reported as higher than expected, showing increases that awakened the fear of inflation. Since Bonds hate inflation, this would normally have caused Mortgage Bonds to weaken, and pushed home loan rates higher. So why didn’t that happen?

Traders have their eyes glued to the action surrounding the US Dollar. They know that the presently weak US Dollar means that our domestic products are cheaper for Europeans and foreign products from Europe more costly for Americans. So what? Well, this imbalance hurts the already fragile economies within the European Union and Japan, while helping US exporters. The natural inclination on the part of the European and Japanese Central Banks is to respond with “intervention”, which is the purchase of US Dollar-denominated Bond instruments – like Treasuries and Mortgage Bonds – in an effort to slow down the decline of the US Dollar.

Last Thursday, an important G20 meeting was held in Berlin – where the European Finance Ministers would huddle up and discuss their monetary policy. Top on the agenda was the weak US Dollar. Based on speculation that the European Central Banks would decide to engage in heavy intervention and buy up lots of Bonds, Traders tried to get in ahead of the wave, and scooped up as many Bonds as they could before prices started to go up. This heavy buying action caused prices to start creeping higher and helped home loan rates improve mid-week, even in the face of the inflationary economic data that had been reported.

But wait – the story isn’t over! Turns out that our very own Chairman Greenspan attended these meetings, and told the group that intervention was only a “band-aid” solution, and would have only a limited and short-term effect. Treasury Secretary John Snow backed up these comments by saying that markets must set exchange rates, not the artificial manipulation of currencies that occurs with intervention. Just one day earlier, Bond Traders had been happily sitting on wads of Bonds, but then heard these comments and rushed to get back out. This caused Bond prices to move back lower on Friday, and home loan rates gave back the improvements made earlier in the week. All in all – home loan rates ended the week largely unchanged from the beginning of the week.

AND WHEN IT COMES TO YOUR OWN DOLLARS…CAVEAT EMPTOR – “LET THE BUYER BEWARE”. BUT HAVE YOU HEARD OF ‘CAR’-VEAT EMPTOR…“LET THE CAR BUYER BEWARE”? READ THIS WEEKS MORTGAGE MARKET VIEW, WHICH BRINGS A TIMELY TIP FOR NEW CAR BUYERS.

Although the near-term fate of the US Dollar remains in limbo…the week ahead should be relatively calm for rates. On a technical level, the chart below shows how Mortgage Bonds have traded of late, which directly impacts home loan rates. Take a look at the “candlesticks” on the far right side of the chart, showing the recent movement in Mortgage Bond prices. Bonds finally started to move and groove last week, testing the upper and lower limits within a range defined by a “ceiling of resistance” at the 50-day Moving Average, and a “floor of support” at the 100-day Moving Average.

But with Traders heading into a long holiday break…and in the absence of any startling news…it’s very likely that Bonds will remain in this range until after the Thanksgiving weekend. Home loan rates should stay fairly stable in the near term as well.

So, you’re buying a new car! The fun and excitement is something we all enjoy…but don’t be intoxicated by that “new car smell” if you are financing your new vehicle with the dealer. There are a few things you need to be cautious of before the keys go in the ignition, so be sure to look over your lease or loan paperwork carefully.

Some dealers have been reported to use a low-ball quote on the monthly payment. Take this recent story from Licking County, Ohio. A woman was told her monthly payment for a 4-year loan was $487 on her new car, but later noticed that the coupon book she received had 60 payments rather than 48. She went to the dealership to try and correct the error. Incredibly, the salesman simply ripped out the last 12 payments and handed the book back to the woman, saying it was “all fixed now”. Crazy, but true…can you even imagine?

And now there is a new bait and switch ploy to be leery of…“Yo-yo Financing”. There have been over 1000 reported complaints about this practice during the past year alone…and these are just the ones who made a formal complaint, so the actual number of those victimized may be much higher. Here’s how it works. The dealer gives you some financing information and preliminary numbers, and lets you happily drive your brand new vehicle home. But a week later – the phone call comes. Your loan application was turned down…and you’ll have to pay a higher rate if you want to keep the car. Feeling frustrated but in love with your car…you sign the new paperwork, agree to the slightly higher monthly payment and take another deep breath of that sweet new car smell. After all, how could you give up that new car after showing it off to all your friends and family?

Why would the dealer do such a thing? Turns out that that a higher financing rate gains the dealer a larger commission from the lender. Now of course, most dealers are ethical and want you to be a satisfied customer, however you can’t be too careful. Bottom line - if you’re in the market for a new vehicle, be sure to go over your financing paperwork very carefully. And make sure everything is in order – including your approval – before you drive off the lot.

The whole economic calendar will be stuffed into one single day of releases this week, due to the Thanksgiving Holiday. Wednesday will be a busy day with the release of several mid-tier reports, including the always-interesting New and Existing Home Sales.

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

For the week of November 22 – November 26