Watch the Weather Impact Mortgage Rates

Three years to the week after Hurricane Katrina caused $81.2 million in damages, Tropical Storm Gustav is charting a similar Gulf of Mexico path.

Memories of Katrina are making oil traders nervous.  The 2005 storm shut down 30 platforms and 9 refineries.  And, this week, oil prices are up nearly 4 percent on fears that the market, once again, may be disrupted by storm. 

Mortgage rates are edging higher on the news.

The link between oil prices and mortgage rates is not a direct one, but it's worth paying attention to. 

Rising oil prices strain business and consumer budgets, creating inflationary pressures on the economy.  And at no time was this relationship more evident than in May and June of this year.  As oil prices reached new, all-time highs almost daily, Americans felt the impact each time they opened their wallets -- the Cost of Living inflation gauge reached a 17-year high in July 2008.

Inflation is the enemy of mortgage rates so as inflation rises, mortgage rates tend to rise, too. 

And this is one reason why mortgage rates are ticking higher this morning -- there is an overriding fear that Gustav will strengthen into a full-fledged Hurricane before making landfall, causing damage to oil refineries and shipping ports around the Gulf of Mexico.

Damage reduces oil supplies and that causes oil prices to rise.  It's basic supply and demand.

Gustav is expected to make landfall Monday or Tuesday.  If the storm continues on its path, we may see mortgage rates continue to trend higher.  If the storm dissipates, rates should reverse.

More Proof Real Estate is Local!

Stories on TV about the national real estate market are misleading to Americans.

This is because there is no such thing as a "national real estate market".

Consider the latest American Housing Survey. It found that there are 124,377,000 homes in America spread across:

• 50 states, with
• More than 30,000 incorporated cities, and with
• An innumerable number of neighborhoods

And yet, the media repeatedly groups all 124 million homes into one giant lump and then gives an analysis. No matter how you slice and dice the data, a home in Oregon can't be compared to a home in Mississippi.

This is why national real estate statistics are somewhat useless.

To get real estate analysis that matters, look local instead. And I don't mean stats from your state -- I mean stats from your neighborhood. It's the only way to know what's driving home prices on your street.

Unfortunately, finding local data like this isn't easy; it's far too narrow to be covered by the press. So, the best place to get local real estate data is from a local real estate agent or from somebody else with access to raw real estate data in and around your neighborhood.

By talking to "in the market" professionals that know your backyard, you'll get a much clearer picture of your local market -- good or bad -- than the national media could ever provide.

Real estate is a local market so your real estate data should be local, too.

Homeowners Benefit from Lower Housing Starts!

Housing Starts measure the number of new housing "units" on which construction has started and in July, Housing Starts fell to its lowest levels since March 1991.

For homeowners, this is a welcome bit of good news because as fewer homes are built, there is less inventory from which home buyers can choose, making their homes a more important part of the existing home inventory.

With fewer homes for sale, the supply-and-demand curve shifts in favor of home sellers and this adds a support floor for home prices. In addition, with less new construction , those homes built in the past few years become more attractive to potential home buyers who are looking for the newest home possible.

For home buyers, though -- and for the opposite reason -- the low number of Housing Starts may not be as welcome.

With fewer new homes on the market, owners of "used" homes may feel less pressure to lower their asking prices or to make other concessions to interested buyers. This means that home buyers may pay more for a home, or get fewer "throw-ins" on the contract.

For all of the hocus-pocus 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.

Homebuilders learned this lesson and July's Housing Starts data supports that.

(Image Courtesy: Wall Street Journal Online)

Mortgage Insurance Rates on the Rise

Private Mortgage Insurance (PMI) is an insurance policy paid to a lender in the event that a homeowner defaults on his home loan.

With the growing number of mortgage defaults nationwide, mortgage insurers are finding their balance sheets under attack and their revenues in the red.

So far this year, mortgage insurers have paid out $6 billion in claims.

In response to the losses, the mortgage insurance industry is using two tactics to return to profitability -- and both mean bad news for homeowners.

1. Raise the minimum standards to get insurance
2. Raise the annual mortgage insurance cost

This is very similar to what Fannie Mae and Freddie Mac are doing to shore up their respective balance sheets; lending to only the most credit worthy, and making sure to charge them for their commensurate risk.

Because of the higher PMI rates, it's getting more expensive for small-downpayment home buyers to finance their homes. And that's if they can even still get mortgage insurance.

Some mortgage insurers now require a 10 percent minimum downpayment in certain states.

So with the number of mortgage defaults expected to rise through 2009, qualifying for PMI should get more expensive and more difficult. If you plan to make a small downpayment on your next home -- or plan to remortgage your current low equity home -- consider moving up your timeframe.

It may not be as cheap or as easy to get financing as it is today.

(Image courtesy: The Wall Street Journal)

How Your Purchasing Power Just increased!

The Producer Price Index is a business inflation meter and it's now up 9.8 percent annually.

This is a huge number for PPI and represents the highest year-over-year rate of inflation since 1981.

Normally, blowout inflation like this would be terrible for mortgage rates but mortgage markets are actually improved since last Tuesday's data release.

Usually, a rocketing PPI would create an inflation expectation on Wall Street which would, in turn, cause mortgage rates to rise, impacting home affordability.

Yesterday, however, that's not what happened.

Upon the PPI release, Wall Street looked at the 9.8 percent number and simply shrugged it off. "Of course PPI is high," traders thought. "Did you see how high energy costs were last month?"

Traders know that in July, oil prices reached an all-time high of $147.27 per barrel and, since then, crude is down more than 20 percent. Because of this, Wall Street has now turned its attention to the August PPI data, thinking it will much more calm than July's.

In other words, instead of fearing inflation, traders believe the worst of it is over, providing an unexpected boost to home buyers in need of mortgages. As inflation expectations fall, mortgage rates are following suit.