The day after Thanksgiving is a busy shopping day nationwide and, this year, analysts are paying extra attention to sales figures.
Dubbed “Black Friday” in reference to red ink representing loss and black ink representing gain, today’s start to the Holiday Shopping season is believed to be the day that retailer balance sheets finally cross over to profitability.
But the accounting connotation of the phrase “Black Friday” wasn’t its original usage — it’s a media-coined term.
When the phrase was first used in Philadelphia in 1975, it was in reference to the day after Thanksgiving being the busiest shopping and traffic day of the year.
There’s other Black Friday trivia out there, too:
Did you know? Black Friday is neither the largest, nor the most profitable, shopping day of the year. Contrary to popular wisdom, it’s the 5th biggest, not the first. The two weekends before Christmas are usually the “biggest” series of days.
Did you know? In an attempt to spur the economy in 1939, President Franklin D. Roosevelt proposed to move Thanksgiving ahead by 7 days. 7 more days of shopping, he thought, would help retailers and help the economy. Eventually, the idea dubbed “Franksgiving” failed.
Did you know? To protect competitors from price matching “deals”, some retailers copyright their Black Friday advertising. Others won’t print prices at all.
Did you know? Last year, 14 percent of Black Friday shoppers had made a purchase prior to 4:00 A.M. with an average ticket of $347.
Black Friday is of special significance this year because consumer spending accounts for two-thirds of the U.S. economy. If Americans are shopping in full force, expect economic optimism and a mild rebound in the stock market. Unfortunately for home buyers, this should also lead mortgage rates higher.
By contrast, if sales figures are weak, expect talk of recession to grow.
Black Friday (Shopping)
Geek Trivia: Early bird special
Jay Garmon, Nov 22, 2005
Like everything else on Wall Street, mortgage markets are based on supply and demand. When demand outweighs supply, mortgage rates fall.
So, Tuesday, when the government unexpectedly announced a $500 billion budget for buying mortgage debt from Fannie Mae and Freddie Mac, the demand side of the mortgage market ballooned.
The surprise demand helped push mortgage rates to their lowest levels since January 22, 2008. 30-year fixed mortgage rates were down by as much as three-quarters of a percent Tuesday before retreating higher.
Not coincidentally, January 22, 2008, was the date of another unexpected government intervention — a surprise 0.750 percent Fed Funds Rate cut that was meant to spur the economy forward.
Interventions like these are a big reason why predicting mortgage rates is tough business — just when you discover the market’s balance point, an outside force shifts that balance, creating tremendous amounts of uncertainty about the future.
Uncertainty on Wall Street is typically bad for mortgage rate shoppers because it leads to high levels of volatility. Look at the trading pattern from Market Open to Market Close yesterday:
- 8:30 AM ET: Markets open with rates falling on the news
- 10:00 AM ET : Rates fall more on momentum trading
- 12:00 PM ET : Rates level at their lowest levels of the day
- 2:00 PM ET : Rates rise as profit-taking begins
- 3:30 PM ET : Rates rise more on momentum trading
- 4:00 PM ET : Markets close with rates down by half
Again, not coincidentally, this is the exact trading pattern from January 22, 2008. On that day, rates were at their lowest about 3 hours into trading, and then consistently rose all the way into Market Close — just like we saw Tuesday.
Unfortunately, in the 30 days that followed January 22, mortgage rates rose from a 3-year low to a 3-year high. And, it’s not to say that the same thing will happen from now through December 25, but trading patterns have a tendency to repeat themselves over time.
Mortgage markets seek balance and when there’s a dramatic shift, chaos can creates opportunity. Tuesday’s $500 billion pledge added new demand and shocked the mortgage market system. Before long, it recovered to find balance.
As of today, mortgage rates are still hovering near their 3-year lows so if you haven’t spoken to your loan officer about a refinance, consider calling today.
In real estate, the term existing home refers to a “used” property; one that can’t be classified as new construction.
The number of existing homes sold each month is tracked by the National Association of REALTORS. The report is often used as a gauge for the health of the real estate market nationwide.
In October, nearly 5 million existing homes sold across the U.S. This figure represents a slight drop from September’s reading, and a equally slight drop from the October 2007 data.
But, October’s Existing Home Sales figures marked the 14th straight month in which Existing Home Sales straddled 5-million units. This is a remarkable statistic because 14 months of anything is a pattern, not a blip. Despite what the news tells us, Americans are buying and selling real estate at a somewhat steady clip.
As we head into the Holiday Season, buyer activity should slow, reducing demand for homes. At the same time, however, widespread foreclosure moratoriums should reduce the number of homes available to buy. These forces should counter-act to help keep the market (and prices) in balance.
To run at peak efficiency, heating, ventilation and air conditioning (HVAC) unit must be kept clean. Efficiency saves power which, in turn, saves money.
Watch the 1-minute video above and learn how to replace an air filter. HVAC air filters should be changed at least quarterly, with more frequent replacements in certain homes:
- Homes under construction or in repair
- Newly-built homes with loose dust in the air
- Homes of families with allergies or asthma
- Homes of families with shedding pets
Be aware, however, that not all air filters are created alike.
When it comes to air purification, you often get what you pay for as The Carey Brothers prove in this other 1-minute video. Using “The Salt Test”, we see with our own eyes how 99-cent filters are inferior to $16 ones.
The good news is that quality air filters can be found cheaply online.
Business television and newspapers have made deflation a hot topic this week and, since Monday, Google has tracked 13,000 mentions of it.
Deflation is a recurring cycle in which the prices of goods and services fall. Isolated to one industry or sector, falling prices is the natural result of competition.
For example, when DVD players were first introduced, they were tagged at $800.
Today, you can buy them for less than $20.
Across many industries, however, and happening at the same time, falling prices can shut down the economy. Rather than buy things on the cheap, people stop buying anything at all. And why would they? The same items will cost less tomorrow.
And this is the problem with deflation — it halts consumer spending and consumer spending makes up two-thirds of the U.S. economy. When it stops, the economic result is dwindling corporate revenues which leads to:
- Layoffs of the workforce, which leads to…
- Less consumer spending, which leads to…
- Dwindling corporate revenues, which leads to…
And the spiral continues.
Deflation can be much more insidious that its expansionary counterpart — inflation. Inflation is when the prices generally rise over time and it’s an economic condition through which governments can comfortably navigate. Deflation, on the other hand, is more rare and, therefore, fewer practical control measures exist.
Whether the U.S. economy will slip into deflation is a matter of debate.
The Fed has cut the Fed Funds Rate to promote economic growth and those changes can take up to 12 months to work their way through the economy. Deflationary pressures we’re seeing today, in other words, may have already been addressed and corrected by Ben Bernanke’s 10 rate cuts in the last 14 months.
Until the market figures it out, though, expect that each mention of deflation will hurt the stock market and help the bond market — including the mortgage-backed variety. This should help lower mortgage rates and make homes more affordable.
When it comes to housing data, there are always two questions to consider:
- How does this impact buyers?
- How does this impact sellers?
This is why housing data is rarely positive or negative on a universal level — one group of Americans is going to see benefit.
Today, it’s home sellers.
From the government, we learn that Housing Starts fell to their lowest levels since 1947 last month. A “Housing Start” is a new housing unit on which construction has started. Building permits are down, too.
This is all good news for people selling their homes in the coming months. As fewer homes are built nationwide, there is less inventory from which home buyers can choose. With fewer homes for sale shifts the supply-and-demand curve, adding a stronger support floor to home prices.
For home buyers, though, the Housing Starts data may not be as welcome.
With fewer new homes coming on the market, owners of “used” homes may feel less pressure to lower asking prices or to make other concessions. Home buyers often pay more when home supply is falling, or find that sellers are less willing to add “throw-ins” to a contract.
For all of the analysis that surrounds real estate data, in the end, home prices are based on the supply of homes versus the demand for homes. When supply outpaces demand, home prices fall, and vice verse.
Homebuilders know this and October’s Housing Starts data reflects it.
If the presence of inflation causes mortgage rates to rise, then the absence of inflation should cause mortgage rates to fall. And, in most markets that’s true.
Today, it’s not.
Despite a deep dip in consumer prices not seen since 1947, mortgage rates are inching higher this morning.
Higher mortgage rates make homes less affordable to home buyers.
The main reason why rates are rising today is that the Cost of Living didn’t just ease last month — it plunged. In fact, the monthly drop was so severe that Wall Street now questions whether this summer’s record-breaking inflation will lead to equally-strong deflation this winter.
In economic terms, deflation is the opposite of inflation — it’s when prices and wages chase each other lower. The two can be equally bad for the economy. What’s often best for Americans are moderate, steady readings.
Because of the rapid decline, markets fear that Consumer Prices may have swung way past moderate in October and started a downward spiral. As always, however, market opinions can change quickly and when they do, they usually take mortgage rates with them.
In March 2008, HUD temporarily raised FHA loan limits around the country. Effective January 1, 2009, FHA loan limits revert.
FHA home loans are mortgages made by private lenders and insured by the federal government.
Historically, FHA home loans have been “easier” for which to qualify than their conforming mortgage counterparts and, therefore, tend to be associated with borrowers of tarnished credit quality.
Today, that’s the not the case.
The FHA home loan underwriting process can be as tough — or tougher — than a conforming mortgage underwrite. There is extra documentation required and the home appraisal process is often more thorough.
Where FHA home loans shine is in their limited downpayment requirements.
To purchase a home with a FHA-insured mortgage requires a 3 percent downpayment as of today; in January, it moves to 3.5 percent. Versus the typical conforming mortgage requirement of 5 percent or more, FHA serves as somewhat of a home affordability product for Americans. In addition, FHA allows larger “cash out” refinances than Fannie Mae or Freddie Mac.
The 2009 FHA loan limits (in most areas of the country) are:
- 1-unit : $271,050
- 2-unit : $347,000
- 3-unit : $419,400
- 4-unit : $521,250
Note that the loan limits don’t apply to all areas of the country equally. Higher-cost regions feature higher loan limits, based on typical home values. Homes in Los Angeles County, for example, can be FHA-insured up to $625,500 in 2009, and there are exceptions made for Alaska and Hawaii.
The official FHA announcement published all of the counties with access to higher loan limits, spread across two spreadsheets. The first spreadsheet lists each county at the $625,500 maximum; the second list is everyone else.
If your home county is on neither list, use the “base” numbers above.
Vacuum cleaners are meant clean our homes, but in addition to picking up dirt, dust and mites, most vacuum cleaners also spread harmful bacteria.
As revealed in this this 4-minute video from NBC’s Today Show, E. Coli, salmonella and other virus-causing entities are commonly found on vacuum cleaner under-bristles and, in some cases, bacteria can be 100 times more concentrated than on a public toilet seat.
The video goes on to give some general rules to limit indoor germ exposure — some more practical than others. The rules include:
- Avoid wearing shoes indoors
- Wash your hands after playing on the carpets and rugs
- Don’t stop vacuuming
And, of course, having the right hardware can help, too.
If it’s time to replace that old vacuum, start your search online with a discount store like GoVacuum.com. Most online sites will have a wider selection than your local hardware store and shipping is usually free.
To help demystify the mortgage process, the federal government is giving the much-maligned Good Faith Estimate document a makeover. Effective January 1, 2010, the current, 2-page form will be replaced by a new, easier-to-understand version, spanning 3 pages.
The biggest strength of the new Good Faith Estimate is that it uses everyday English to explain how the mortgage works. For example, in one section titled “Loan Summary”, the Good Faith Estimate specifically answers:
- What is your interest rate?
- Can your interest rate rise?
- Does your loan have a prepayment penalty?
Using today’s disclosures, the answers are spread across 3 separate forms.
In addition, the new-look Good Faith Estimate identifies what charges are legally allowed change at the time of settlement, and how a mortgage applicant can opt for higher fees in exchange for a lower mortgage rate, and vice versa.
These educational elements are lacking from the current model.
But for all of its clarity, the Good Faith Estimate doesn’t address the issue of suitability. As in, is this the right loan for the right borrower? The new Good Faith Estimate won’t prevent homeowners from choosing “bad loans” — it will only educate them about the loan’s facts.
For suitable advice — as always — talk with a trusted mortgage professional who will both listen to your needs and help you make plans for them. Getting the “best terms” on an unsuitable loan can be far worse that getting great terms on a loan that fits.