For parents with children in college, or nearing college age, this video from NBC’s Today Show is worth watching.

Investing in collegiate housing is not for everyone, but if the angle interests you, don’t forget to purchase an accompanying personal liability insurance for injuries that may occur on-site.

Economists worry about rising oil prices because it tends to generate higher pump prices for Americans. With more money spent on gasoline, there’s (theoretically) less money available to spend on goods and services.

Today, GasBuddy.com says that the average price for a gallon of unleaded gasoline is $2.792, up from $2.344 last year at this time.

Now, as a country, it is estimated that we consume 146,000,000,000 gallons of gasoline annually. That converts to 400 million gallons each day.

Therefore, the 44.8-cent difference between today and last year at this time, costs Americans an additional $179,000,000 in fuel charges daily.

And this doesn’t account for premium gasoline or diesel fuel charges.

Consumer spending makes up roughly two-thirds of our economy so when gas prices rise, economists worry — it means that less money is available to pump back into businesses, and that the economy should slow down.

The good news in this type of story is that people in the market for a new home loan may benefit. A slowing economy tends to lead to lower mortgage rates.

As Hurricane Season rolls on and the post-Fed meeting chatter dies down, expect to hear more from the news on the price of oil and gasoline.

The National Association of Realtors® released its monthly Existing Home Sales report for August 2006 and, as usual, you should be ignoring it.

The report discusses real estate on a national level and we all know that real estate is a local phenomenon.

It’s not that the report isn’t helpful — it is. The Existing Home Sales report paints a broad picture of our nation’s housing market which has implications for the economy as a whole.

The reason why the EHS report is not helpful to individual homeowners is because the process of buying and selling real estate is not a national occurrence — it’s a very, very local one.

When you buy your next home, you won’t be buying a home that exists in all 50 states. You’ll be buying a very specific home on a very specific street in a very specific neighborhood.

So, when the NAR — a national group! — reports that home supply is up and home sales are down, it is lumping every street in every town together into one giant chunk of irrelevant data.

Again: real estate is a local business, not a national one.

On the “street” level, the story can be much different from what the general reports tells us. Locally, there are plenty of areas in which there is a shortage of homes and in which property values are increasing.

This is why “national” real estate stories in the papers are often wasted ink — accurate real estate stories are the local ones.

In a study of 2,036 U.S. adults commissioned by Visa USA, nearly half of all Americans are losing track of their money.

An average of $45 in cash is “lost” each week in what Visa dubs “mystery spending”.

Mystery spending is Visa’s version of “I know I had this money in my wallet but I can’t figure out what I spent it on.”

Averaged out over the course of a year, mystery spending accounts for $2,340 — enough to fund a Roth IRA or other investment plan.

According to the study, events most likely to cause “mystery spending” include:

• Out for a night on the town (58 percent)
• Grocery shopping (55 percent)
• Out with children (50 percent)
• Shopping during a sale (40 percent)
• Shopping with friends (33 percent)

How people spend money isn’t the point of the survey but it does raise an interesting point about how careless we can all be with our dollars.

On one hand, we wonder how will we fund retirement, or pay for college, or send our children to tennis lessons. On the other hand, we aren’t even aware of how much cash we’re spending and where we are spending it.

For example, if the average American saves the $2,340 annually at 8% instead of “mystery spending” it, that money could grow to $31,000 in 10 years, $91,000 in 20 years, and $204,000 in 30 years.

Being aware of your money is the best way to control it.

Source
Half of All Americans Say They Lose Track of $2,000 In Cash Each Year
September 10, 2007

As if home financing isn’t complicated enough, The Tax Relief and Health Care Act of 2006 included new tax code for homeowners.

The act grants itemized deductions for private mortgage insurance (PMI) and government mortgage insurance (MIP) expense premiums paid in 2007.

For all loans “started” in the 2007 calendar year, mortgage insurance is tax-deductible provided that two tests are met:

1. The homeowner’s household income is $100,000 or less in 2007
2. The home loan is for a primary or secondary residence

For households earning more than $100,000, the deduction is phased out to the tune of 10% per $1,000 of additional income until it reaches 0% at $110,000

So, if a single person earns $90,000 in 2007 and buys a home using MI, the MI expenses are tax-deductible in 2007.

However, there’s a catch!

Because the new tax code is due to expire December 31, 2007, there is no guarantee that the MI will be tax-deductible in 2008.

Until the tax code changed, mortgage insurance was a relatively expensive financing option when compared to second mortgages (i.e. home equity loans, home equity lines of credit). As the market for second mortgages dries up, though, the playing field is leveling.

There are plenty of examples in which mortgage insurance is a more cost-effective route than taking a second mortgage.

A full analysis should be performed to determine which home loan products are best for you, especially considering the “temporary” status of the tax break. The deduction applies to conventional, FHA, and VA loans.

As we’ve discussed a few times lately, the Federal Reserve does not control mortgage rates.

When the Fed makes headlines for “lowering rates”, that is a reference to the Fed Funds Rate, a special lending rate between banks.

Sometimes, mortgage rates will fall when the FFR falls, but not always. Consider what happened this week:

The Fed dropped the FFR by 0.500% Tuesday. Immediately, mortgage rates fell by at least 0.1250% across the board.

Then, mortgage rates reversed.

In the two days since the Fed’s meeting, mortgage rates have approached their highest levels of the month.

Mortgage rates are determined by the price of mortgage bonds and after the Fed’s rate cut devalued the U.S. dollar, mortgage bonds are worth less as an investment.

When an investment loses its value, the market tends to be over-weighted with sellers and that pushes the supply-and-demand balance to the supply side.

Extra supply means lower prices and — in the bond market — lower prices leads to higher rates. That’s why mortgage rates are higher now than they have been, even after the Fed Funds Rate cut.

The connection between mortgage rates and the economy as a whole can be a complicated web, but consider this additional evidence that the Fed Funds Rate and mortgage rates are unrelated.

Prime Rate is currently 7.750%.

Prime Rate is the “shorthand” name for the Wall Street Journal Prime Rate, a variable interest rate that is used in pricing many types of consumer loans.

These loans include:

• Home equity lines of credit
• Credit card loans
• Auto loans

Prime Rate’s variable nature is tied to the Fed Funds Rate. Prime Rate moves in tandem with the FFR and is always three percentage points higher.

So, after the FFR’s 0.500% drop Tuesday, consumer loans tied to Prime Rate dropped by 0.500%, too.

Prime Rate was 4.000% in June 2004 before the Federal Reserve started a string of 17 rate hikes to 8.250%. Tuesday’s drop is the first reversal since the rate hikes began.

The Fed lowered the Fed Funds Rate by 0.50% yesterday. A rate decrease was expected by most market participants, but the 50 basis points movement seemed to catch some players off-guard.

Mortgage rates dipped in the wake of the announcement, but the real winners are homeowners with balances on their home equity lines of credit and holders of credit card debt.

Each saw their respective borrowing rates drop 0.50% yesterday because the interest rates for HELOCs and credit cards are based on Prime Rate.

Prime Rate moves in lock-step with the Fed Funds Rate.

In the statement above — as explained by The Wall Street Journal — the Fed expressed concern about a broader economic slump and the half-point reduction is attempting to prevent it from worsening.

Source
Parsing the Fed Statement
The Wall Street Journal Online
September 18, 2007
http://online.wsj.com/mdcapp/public/page/2_3024-info_fedparse_shell.html

It’s all eyes on the Fed today; the market anxiously awaits the central bank’s 2:15 P.M. ET press release.

Some of the market bias towards a 0.50% rate cut has decreased in favor of a 0.25% cut. This shift is largely psychological.

Markets are trying to “get inside the head” of Fed chief Ben Bernanke, speculating about how he will react in the first Federal Open Market Committee meeting since the credit crunch reached a head in mid-August.

The speculation and guessing tells us that there is tremendous uncertainty about how the FOMC will vote today.

Uncertainty in markets leads to volatility.

No matter which course the Fed chooses – 50 basis points reduction, 25 basis points reduction, or something else — there will be a lot of traders scrambling to reposition their portfolio because of “bad bets”.

Mortgage rates are calm this morning. The calm likely won’t last. If you are floating your mortgage rate and don’t like taking on additional risk, locking your rate prior to the FOMC press release may be a safe play.

Once September hits and the kids head back to school, real estate markets enter the “Shoulder Season”, a time in which markets are neither in their strongest nor their weakest cycles.

Shoulder Season is exemplified by a trip to Disney World after Hurricane Season, but before Winter Break. The crowds are smaller, the hotels are cheaper, and the Disney World experience is still 100% Disney.

Because real estate markets are typically slow beginning in late-Fall, real estate is now entering its Shoulder Season. There are a lot of willing buyers and sellers right now and many of them want to make a deal before the winter gets too close. In the winter, activity tends to slow on both sides of the table.

Shoulder Season has no official end date, but “Winter Season” tends to begin in late-October, continuing until the “Spring Market” start sometime in early-March.

Homes are still bought and sold during the typically slow Winter Season, but the market just doesn’t move as quickly. For buyer and sellers looking to make a move, Shoulder Season can be a terrific time to do it.

As crude oil crossed $80 a barrel Thursday, the Wall Street Journal ran an interactive poll with its readers.

What sustained price for gasoline would cause you to cut back on other household spending?

The graph above shows the on-going results of the non-scientific study. You can chime in, too, at http://forums.wsj.com/viewtopic.php?t=805.

As consumers cut back spending, the economy slows down which generally leads to lower mortgage rates and weaker housing markets as a result of job losses. According to GasBuddy.com, some areas of San Francisco are already topping $3.50/gallon.

Headlines today read that the value of gold is nearing its all-time high (adjusted for inflation). The lay person would ignore this story, but those in the know understand that the price of gold is usually reflective of the state of the global economy.

The spot price of gold tells a lot about investor psyche and it is up nearly 10 percent from its 30-day low.

As a “safe haven” investment, gold’s value tends to increase when an economic recession is expected. That’s because gold tends to hold its value during a recession; its value is tied to the global economy and not that of any one country.

In the chart above from Kitco, the path of gold’s price appears to mirror the path of market expectations for the Fed’s meeting next week. As the likelihood of a Fed Funds Rate cut increases, so does gold’s relative value in U.S. dollars.

As gold reaches new highs, it’s predicting somewhat of an economic recession.

Mortgage rates “come from” one place only: the prices of mortgage bonds as determined by investors.

The higher the price, the lower the corresponding return, or rate.

Bonds — like stocks — are traded as securities. An investor may buy Microsoft stock if he thought the company’s future looked bright, and he may buy mortgage bonds if he expected favorable bond market conditions ahead.

In a declining economy, bonds can be an especially attractive investment because they offer a fixed rate of return to an investor. As more buyers line up to buy, of course, the price of bonds goes up.

Again, higher price = lower rate.

So, because Friday brought us a surprisingly weak job report, investors have increased their exposure to mortgage bonds, pushing prices higher and, therefore, pushing mortgage rates down.

Now, all of this is happening in advance of the Federal Reserve’s meeting September 18 and that’s important to recognize.

Mortgage rates, in effect, have dropped because of the market’s expectation of what the Fed will do next week — not because of something that it has done already. Markets expect that the Fed will lower the Fed Funds Rate, thus signaling that the economy is in decline.

Therefore, if the Fed’s actions meet the market’s expectations Tuesday, mortgage rates shouldn’t move even a hair — that “future scenario” has already been priced in. If the Fed fails to meet expectations — on the high-side or the low-side — mortgage rates will change.

Line 901 of a mortgage settlement statement is commonly confused for a closing cost. It’s actually an “advance payment” on the mortgage.

Often called a per diem by mortgage professionals, line 901 itemizes a borrower’s prepaid mortgage interest charges due at closing. The total amount due equals the daily rate of interest multiplied by the number of days remaining in the month.

If a mortgage funds on September 28, for example, the per diem would be 3 days.

One reason why per diem is due at closing is because mortgage interest is billed in arrears. That means that on the first of every month, the mortgage interest that accrued in the month prior is due.

Now, in the scenario above in which the closing is set for the last Friday of the month, it is highly unlikely that a mortgage lender would receive the loan documents from closing, process them through quality control, and then get a statement to the new borrower in time for the borrower to make his mortgage payment Monday morning.

Even with a 15-day grace period, it’s a challenge.

So, to keep life simple, lenders collect all of the interest that would normally accrue up to the date of first payment at the time of closing. Then, when the 1st of the month arrives, there is no payment due — it was already paid at the time of closing.

Weak employment data pushed mortgage rates lower last week, creating opportunities for home buyers and home sellers.

Against expectations of 110,000 new jobs created in August, last Friday’s Non-Farm Payrolls report showed a loss of 4,000 jobs.

The story made headlines all over the country this weekend. Here’s why it matters:

1. An employed person earns an income
2. An employed person spends their income on goods and services

When more people are employed, more dollars are circulated inside the U.S. economy. It’s widely believed that two-thirds of the economy is the result of consumer spending, in fact.

So, because the economy showed job losses, market participants are predicting that the economy will start to slow this fall as consumers spend fewer dollars. They are also predicting that the Fed will lower the Fed Funds Rate to help create a “soft landing” for the economy.

Both scenarios should pressure mortgage rates lower. This is because runaway growth creates inflation and inflation devalues the dollar-denominated mortgage bonds. If the bonds have less value, there will be fewer buyers. Slowing growth, on the other hand, increases demand for mortgage bonds.

As demand for mortgage bonds increases, the rates that go along with them decrease.

This week, we’ll get to see if consumer spending habits are changing yet. Friday, the Department of Commerce will release August’s Retail Sales report. It’s expected to show a 0.3% increase over July.