Friday, September 3, 2010

Brandon Knapp's Market update 9/3/10

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Provided to you Exclusively by Brandon Knapp


For the Month of September 2010 --- Vol. 5, Issue 9


Brandon Knapp
Brandon Knapp
Branch Manager / RPM Mortgage Office: 408-583-3205
Fax: 408-404-5574Email: bknapp@rpm-mtg.com
Website: www.rpm-mtg.com/bknapp







What you don’t know CAN hurt you. Financial markets are complex systems with nuances that can impact your home loan and budget. This issue is dedicated to helping you make sense of some of those important – but often overlooked – factors. For instance, did you know the amount of money that you and other consumers spend can actually impact home loan rates? Or that bad economic news can be good for home loans rates? The articles below explain why…and what you need to know.


IN THIS ISSUE...




Velocity and personal spending - Did you know that consumer spending can impact home loan rates? Here’s how!
7 factors - If you’re trying to decide whether you should move or remodel, check out these 7
important factors.

Q&A: Why is bad news good? - Discover why bad economic news usually results in good home
loan rates.
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How Does "Personal Spending" Impact Home Loan Rates?
At the end of August, the Commerce Department reported that Personal Spending and Personal 
Incomes rose slightly in July, while the Personal Savings rate fell to 5.9% in July from 6.2% in June. 
While the rise in spending and income is good news for consumers and the economy, many people 
aren’t aware that those statistics can have an impact on home loan rates.

So…why is all this significant and what does it have to do with home loan rates?
It has to do with something called the “velocity of money.” Even though the government keeps
pumping money into the system, nothing happens until that money is spent or lent, and passes from
one hand to another or one business to another. The speed at which this money passes between 
parties is called the velocity of money. With the job market still very sluggish, consumers aren't spending
 much money these days... and businesses are still reluctant to spend money or make investments in
 their business. With present velocity at low levels, inflation remains subdued...however, once velocity
 increases, the excess money in the system will cause inflation.

And remember, inflation is the archenemy of Bonds and home loan rates – which means that even
the scent of inflation can cause home loan rates to worsen.

If you or anyone you know would like to learn more about taking advantage of historically low home loan rates, please don't hesitate to call or email. Or forward this newsletter on to anyone you think may benefit and I'd be happy to talk to them free of charge.

Move or Remodel: 7 Factors to Consider







1. The size of your family has changed. The most common reason people move is because of the
 size of their current home. Many young couples have purchased a cozy two- or three-bedroom, 
 1,000-square foot home that suits their situation perfectly. The home has a master bedroom, a guest
 bedroom, and possibly a home office. A single living area with couches and an entertainment center
 provides the couple with ample space for the two of them and their visitors. As they start a family, the
 first child moves into the guest bedroom, and toys soon take over the living area. The perfect house
 for two becomes too small for three or more.

2. You want better schools. Unless your children attend private school, the location of your home 
usually dictates which schools your children will attend. This is great when it comes to building a sense 
of community, as children can walk or bike to school together. Having a school nearby can also cut 
down on travel time for dropping off and picking up your children.

3. Your commute is a killer. Many people choose to move because they have changed jobs. Be it
out of state or in another community, most people will only commute so far. If you want to have a shorter
commute, then moving may be your only answer.

4. You don't like remodeling. Remodeling is not for everyone. No matter how it’s accomplished, one
thing is unavoidable: the inconvenience. It can be as little as not using your kitchen for a day while it is
being painted or as much as moving out for six months while some major work is done. For some, any
inconvenience is too much, so a move may be the way to go.

5. You don't like your neighborhood. Each neighborhood has its own characteristics. Some have
big yards; some have small. Many have sidewalks and streetlights while others do not. Some 
neighborhoods have kids playing on the street all day long and friendly neighbors stopping by to chat
every day. In other neighborhoods, people keep to themselves and rarely wave as they drive by each
other on the way to work. As much as we all would like to change some features of our neighborhood,
many are out of our control. If your neighborhood doesn't meet your needs, a move may be the only
solution.

6. Your home has a bad floor plan. If you don’t like the layout of your home, then moving could be
the right solution. If you’re seeking a kitchen in front and a family room that faces south, but your home
has the kitchen in back and the family room facing north, a remodel may be too expensive to be 
practical. Due to lot size, building codes, or physical barriers, some homes may not lend themselves
to remodeling the way you want. Building codes can limit the type and size of additions as well as their
appearance.

7. Your yard leaves much to be desired. For many, the yard is an integral part of the house. A yard
is land to call your own, whether it’s a place to plant flowers or vegetables, or an expanse of grass that
you take pride in keeping green and manicured all summer long. The question is, how big of a yard do
you want and is your current one adequate?

If you’d like to explore the topic further, you may want to consider the 
resource: Remodel or Move™. This independent organization was founded with the mission 
of empowering consumers to make the best “remodel versus move” decision. The 
organization’s website provides reference materials, evaluation tools, and no-nonsense 
information.

Q&A: Why is Bad News Good?

QUESTION: Why is bad economic news typically good for mortgages…and vice versa?
ANSWER: There's actually a pretty simple explanation for this seemingly strange phenomenon. But,
you first need to understand a couple of important financial concepts:
1. Big money managers – who are always in search of higher returns – avoid holding onto cash. So 
they invest in both Stocks and Bonds.
2. Home loan rates are actually based on the performance of Mortgage Backed Securities (MBS), 
which are a type of Bond.

When we put those two facts together, we begin to understand the relationship between bad economic
 news and good home loan rates. Here’s why: Whenever the economy is on fire and there are good 
economic reports along with positive economic news, investors tend to put more money into Stocks. 
That’s because Stocks are more risky, but they generally offer higher returns. To do this, however, 
investors must remove some of their money from less-risky Bonds. This decreased demand in Bonds 
causes Bond prices to worsen, which causes home loan rates to rise.

Inversely, when the economy is sluggish and economic reports are negative, money managers tend to
 remove money from higher-risk Stocks and put it into less-risky Bonds. As the demand for Bonds 
increases, Bond pricing improves and home loan rates decrease.

The material contained in this newsletter has been prepared by an independent third-party provider. The material 
provided is for informational and educational purposes only and should not be construed as investment, financial, 
real estate 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 always want to make sure you are clear on all details of the home financing process. If you or
 someone you know are interested in purchasing or refinancing a home, give me a call today!

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