For the week of April 4, 2011 – Vol. 9, Issue 14

QUOTE OF THE WEEK…“Adopt the pace of nature: her secret is patience.”–Ralph Waldo Emerson

INFO THAT HITS US WHERE WE LIVE…Patience has certainly been needed to weather the ups and downs of the current U.S. housing market. But as we await strong recovery, we can take heart in positive signs when they show up. Last week we had the report that Pending Home Sales were up 2.1% in February. This measure of contracts on existing homes indicates sales should rebound in March following February’s drop.

Other tidbits of goodness included the news that the share of homebuyers for second homes held steady in 2010 versus the year before. But this report from the National Association of Realtors (NAR) did show overall sales volume somewhat declining. Meanwhile, the reverse of that is occurring on the luxury end of the market, where sales of homes priced at $1 million and above were up 3.9% in February versus a year ago.

Those market observers who seem dying to report a double dip in housing prices loved last week’s S&P/Case-Shiller Home Price Indices, which were down for January. But the 10-city composite Case-Shiller home price index is still 2.8% above and the 20-city is still 1.1% above their April 2009 lows. Seems the critics could do with a little patience too.

BUSINESS TIP OF THE WEEK…Attitude is everything. Be a fanatic optimist. Consistently see the glass half full. A great attitude affects all those around you–and always wins in the end.

>> Review of Last Week

JOBS SURPRISE…It was a good week for investors who were encouraged by positive economic news, capped on Friday with a surprisingly upbeat March Employment Report. All three major stock market indexes were up again for the week, which began with signs the consumer’s purchasing power is growing. For February, Personal Income and Personal Spending were both UP, while inflation, as measured by Core PCE Prices, was up only 0.2% for the month and 0.9% since last year. This is well within the Fed’s target range.

The highlight of the week was the aforementioned March Employment Report. Nonfarm payrolls were UP 216,000, with the private sector contributing 230,000 jobs, well above expectations. Best of all, job growth was broadly based, with strong gains in several business sectors. The unemployment rate dropped again and is now at 8.8%. The festivities ended with ISM Manufacturing down a tick for March but, at 61.2, well into expansion territory above 50.

For the week, the Dow ended up 1.3%, to 12,377; the S&P 500 was up 1.4%, to 1,332; and the Nasdaq was up 1.7%, ending at 2,790.

The bond market was hurt by the renewed interest in stocks and the better than anticipated jobs report. The FNMA 4.0% bond we watch was off .02 for the week, closing at $98.10. National average rates for conforming mortgages edged up a bit according to Freddie Mac’s weekly survey, but they’re still at historically low levels.

DID YOU KNOW?…ISM reports come from the Institute for Supply Management. Last week’s ISM Manufacturing is considered by many economists to be the most reliable near-term economic barometer for that sector. This week’s ISM Non-Manufacturing provides insight into the Services sector, representing over 80% of GDP.

>> This Week’s Forecast

TAKING A BREATHER…After the recent avalanche of economic news, this week could be seen as a welcome respite. Tuesday’s ISM Non-Manufacturing index for March is expected to hold steady, reflecting the slow pace of the economic recovery. But the reading above 50 puts services solidly in expansion mode, which is key, since 85% of our jobs are in this sector of the economy.

We also get FOMC Minutes from the Fed’s meeting on March 15. Economists will be looking for signs of how soon the Fed may start pushing rates back up.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of April 4 – April 8

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months…More economists are talking about the need for the Fed to tighten monetary policy by edging rates up. But few expect a hike in the funds rate until well into the second half, or even next year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

Probability of change from current policy:

For the week of March 21, 2011 – Vol. 9, Issue 12

QUOTE OF THE WEEK…“To a journalist, good news is often not news at all.”–Phil Donahue

INFO THAT HITS US WHERE WE LIVE…Well, journalists had plenty of their kind of news to write about with last week’s housing reports. The bad stuff began with February Housing Starts dropping 22.5% to a level close to the April 2009 low, which was the lowest on record. Most of the drop was from multi-family starts, which are volatile on a monthly basis. Single-family starts were down 11.8%. New Building Permits fell 8.2% for February. This gauges activity a few months out, indicating starts in the Spring ought to be up a bit from now.

Nonetheless, experts feel building and sales activity should normalize to much higher rates in the next few years. The population is growing and aging housing stock needs to be replaced. Analysts say builders usually need to put up at least one million homes a year to keep up with these demands. Maybe that’s why an industry index of builder sentiment actually ticked up a point for March, putting it at its highest level since May 2010, when the homebuyer tax credits were making everyone feel good.

BUSINESS TIP OF THE WEEK…Don’t forget to smile. You may think people buy from you because of price, quality and the fact you stand behind your work. Those factors count, but ultimately, people buy because they like you.

>> Review of Last Week

MELTDOWN ON WALL STREET…As of Friday, a nuclear disaster at Japan’s Fukushima complex had been averted, but that didn’t stop stocks from having their own meltdown. Investors sold off holdings, worried over Japan’s nuclear crisis, Libya’s civil war spreading to other oil producers, as well as the European Union’s lingering sovereign debt problems. The market did manage two good days at the end, but they weren’t good enough to prevent another weekly drop in all three major indexes, although many people felt things could have been a lot worse.

Economic news was mixed, the negative part being Housing Starts and Building Permits, covered above. On the very positive side was the Philadelphia Fed Index for March showing solid manufacturing growth in that region. Wholesale (PPI) and Consumer (CPI) Inflation were both up more than expected, thanks to higher energy and food prices. But the Fed focuses on Core CPI, which eliminates food and energy, and remains within an acceptable range. It seems like almost everyone but the Fed is concerned about inflation picking up. Homebuyers should note that real estate is still, even now, an excellent hedge against inflation over the long term.

For the week, the Dow ended down 1.5%, at 11,859; the S&P 500 was down 1.9%, to 1,279; and the Nasdaq was down 2.6%, ending at 2,644.

With Japan’s nuclear fears prominent in the news all week, investors’ “flight to safety” in bonds became a flat-out run. The FNMA 4.0% bond we watch ended up .95 for the week, closing at $99.10. In line with this, Freddie Mac’s weekly survey of conforming mortgages showed national average mortgage rates easing a little more in their historically low range. Many economists forecast mortgage rates to rise this year as the economy recovers, but now feel low rates may remain a tad longer than expected.

DID YOU KNOW?…This week’s GDP estimate refers to our nation’s Gross Domestic Product. This is the total final value of all U.S. goods and services produced in a year: all consumer, investment and government spending, plus the value of all exports, minus the value of all imports. GDP growth is what counts, with 2.5% to 3.0% the historical average.

>> This Week’s Forecast

FEBRUARY HOME SALES AND ANOTHER LOOK AT Q4 GDP…February isn’t usually a top month for home sales and the experts don’t expect that situation to change. Monday’s Existing Home Sales for February are expected to be down from January, coming in at a 5.05M annual rate. But Wednesday’s New Home Sales for February should be up slightly from the prior month, at a 288K annual rate.

But the overall economic picture appears to be picking up. The Third Estimate of Q4 GDP is forecast up another 0.1%, to 2.9%, showing that the overall economy continues to grow. Consumers’ attitudes are holding steady in the University of Michigan’s Sentiment Index for March.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of March 21 – March 25

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months…The Fed’s FOMC Policy Statement last week said that they weren’t worried about inflation and that although the economy is improving, the recovery isn’t strong enough to withstand a rise in interest rates. So economists are forecasting the Funds Rate to stay where it is well into the second half of the year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

Probability of change from current policy:

For the week of March 7, 2011 – Vol. 9, Issue 10

QUOTE OF THE WEEK…“There are no constraints on the human mind, no walls around the human spirit, no barriers to our progress except those we ourselves erect.”–Ronald Regan

INFO THAT HITS US WHERE WE LIVE…We should be especially careful to not erect barriers to our progress just because of a minor setback, like the one we had with last week’s Pending Home Sales. The National Association of Realtors (NAR) index of signed contracts on existing homes slipped in January for the second month in a row. But the drop wasn’t as bad as expected and, as the NAR’s chief economist said: “We should not expect the recovery to be in a straight upward path–it will zig-zag at times.”

The latest NAR overall forecast gave an interesting picture of that recovery. Existing home sales should grow 8.1% this year and another 5.2% in 2012, with the median price essentially flat in 2011 before gaining over 3% next year. New home sales are forecast up about 5% this year, then up over 55% for 2012, with the median price up a bit in 2011, then up 3.5% next year. Fannie Mae’s latest National Housing Survey reported that the vast majority of people believe housing prices will hold firm in 2011 and that Hispanics, African-Americans and Generation Y (18–34 years old) are more positive than other Americans about homeownership.

BUSINESS TIP OF THE WEEK…Do you know what’s the most precious commodity in business? Time! Return calls and e-mails immediately, deliver what clients want sooner than they expect and you’ll enhance your competitive edge.

>> Review of Last Week

SQUEAKING HIGHER…Investors who were worried about oil prices hitting two-year highs amidst Libyan turmoil sent stocks down Tuesday. But economic data continued to portray a steady if slow recovery. So stocks shot back up Thursday by enough to put all three indexes ahead for the week, even after dipping a bit on Friday.

Encouraging economic news appeared on all fronts. The ISM Services index, tracking the sector that employs over 85% of our workforce, reached its highest level since 2005. ISM Manufacturing also hit a multi-year high. Meanwhile, inflation measured by Core PCE Prices, was up just 0.1% in January and 0.8% the past year, well within the Fed’s acceptable range. Then Friday we had the February Employment Report with 192,000 new jobs overall. The private sector contributed 222,000 jobs, its 12th monthly gain in a row. And the unemployment rate unexpectedly dropped again, this time to 8.9%!

For the week, the Dow ended up 0.3%, at 12,170; the S&P 500 was up 0.1%, to 1,321; and the Nasdaq was up 0.1%, ending at 2,785.

Bond prices were hurt by the improving economic data, but went back up as a result of the safe-haven buying driven by continuing tensions in the Middle East and rising oil prices. The FNMA 4.0% bond we watch ended down slightly for the week, closing at $98.14. Mortgage rates dropped for the third week in a row according to Freddie Mac’s weekly survey of conforming mortgages. But buyers should note that these low rates will not last forever, as the improving employment picture will eventually edge them back up.

DID YOU KNOW?…The median home price is the midpoint price for all homes sold. 50% of selling prices were above it, 50% were below. It is less biased than the average home price, which can be skewed upward by a few high-priced homes.

>> This Week’s Forecast

WHAT’S UP WITH THE CONSUMER?…Frankly, it’s a pretty quiet week for economic news, but there are a few significant readings on the state of the consumer at the very end. Friday we see February’s Retail Sales reports, which are expected to show continued growth, both with and without auto sales included. The University of Michigan Consumer Sentiment Index should show consumer confidence holding pretty steady. Thursday, you’ll want to take note of Initial and Continuing Jobless Claims, as jobs remain key to the economic and housing market recovery.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of March 7 – March 11

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months…Last week Chairman Ben Bernanke told the Senate Finance Committee that even though economic conditions were improving, rates should stay low for his familiar “extended period” until he sees stronger job creation. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

Probability of change from current policy:

Reports this weekend were that President Obama’s administration would most likely delay release of its proposal to restructure Fannie Mae and Freddie Mac, as required by the Dodd-Frank law.  The law requires the Treasury to release its recommendations by January 31, but expectations are that it won’t be until mid-February before that occurs, this according to the Wall Street Journal.  With the housing market still fragile, it is most likely that they will try to push this further into the future.

Regarding the FOMC release, we are interested to see how the statement changes, if at all, as a result of the four new voters.  News over the weekend was fairly light with a focus this morning on global inflation concerns.  The rumor is that the Fed will be adopting a more formal inflation target of 2%.  This is a two day meeting starting tomorrow, with the final statement release coming in at 1:15pm CST on Wednesday.  We are expecting very little change to the statement and the FOMC to continue with QE2 purchases.

We will also get our first estimate on GDP for the fourth quarter on Friday.  Looks to be a good quarter for growth given the uptrend in exports and the surge higher in personal consumption.  The consensus is calling for 3.5%.  This is a busy week for economic data, along with the Treasury auctioning 2-year, 5-year, and 7-year notes starting tomorrow.

Treasuries managed to push higher last Friday without making a substantial move to the upside.  The lower trend line that has restricted weakness since December 16^th, now at 119-225, continued to limit any downside into this morning’s trade.  Bears need a break below 119-225(above 3.47% yield) to confirm further downside (higher rates) is likely.  A close above 120-12(below 3.38% yield) would suggest we have further upside potential for better rates and pricing.  Today should be a fairly quiet trading day with the market gearing up for tomorrow’s start to a busy week.

2010 was a mortgage banking year synonymous with the “perfect storm.”

• Double-dip recession fears,
• European debt crisis,
• rising unemployment, etc. etc. took the 10-year treasury note from 3.75% in January to 2.39% in October.

Texas mortgage rates dropped into the high 3’s to low 4’s and everyone and their brother wanted to refinance Austin mortgages. Those people that had a job and remained confident with their personal balance sheets, took a leap of faith and bought a new home at the highest affordability levels in history.  The Fed started operation “Quantitative Easing” and put 8k in every first time home buyers pot.  Life was good and it still is.

Investor sentiment changed course in late October, feeling more confident the economy, which was once in recession, is now making the transition from recovery to expansion. That sentiment, coupled with a fickle and illiquid holiday market, took the 10 year note on a ride to finish the year at 3.31% after printing 3.54% in December.

So what’s ahead in 2011? No one knows for sure.  We do know that treasury and mortgage pricing will be looking for clues.  Clues as to whether or not the economy is really expanding or needs more time to clear the mine fields.  Will the debt crisis in Euro land heal or blow up?  Will the employment picture in our country start to improve?  Answers to both will unfold as we move into the first quarter.  Our big picture outlook tends to follow the thinking of expansion within the economy but will be two steps forward and one step back.

Keep in mind that we have come though a time period that has seen historic financial devastation and the consequences that go with it. Think Fed and governmental regulation.  Getting back to even will take a lot longer than in previous recessions.  Patience will be a virtue, something few of us have.  The future will create opportunity.  Once the expansion can be trusted, consumer confidence will improve, employment will gain strength, and with 11 million housing units available to purchase (homeowners selling, foreclosures, etc), affordability will be great and consumers will start to see that they are not alone when making an offer on a home.

Time table on this recovery is optimistically 3^rdquarter 2011. Realistically, early 2012.  In the meantime, many mortgage lenders will struggle with changes in compliance and regulatory issues. Their costs will become a bigger concern as Uncle Sam forces them to conform.  Loan officer compensation will affect everyone and most certainly mortgage company balance sheets.  Fortunately, I work for PrimeLending, A PlainsCapital Company. PrimeLending is at the forefront of the mortgage industry and quite simply: PrimeLending allows me to provide the best rates, loan products, customer service, 30-day closings and more to my clients. This mortgage company enables me to make promises to clients and realtors and KEEP them.

As far as the market is concerned, the tactical bias is neutral to start the year. We feel with a new set of books, investors and traders alike will see yields have moved a little too far a little too fast.  This should give us a New Year’s rally or at least some stability in mortgage pricing.  10 year note yields should produce a short term range of 3.30% to 3.39% (currently at 3.35%).  Longer term will depend on a number of factors, the biggest being employment or the lack thereof.  We’ll get that party started with this Friday’s release of December 2010 figures.

That fact is evident in the four-week moving average which is now at its lowest level since September 2008.  Leading Economic Indicators were also on the docket, up .5% in October.  The monthly gain appears to be broad based, adding to the momentum of gains posted in the last two months.  Keep in mind that the release is thought of as a “rear view mirror” piece of data, one that traders typically push to the back burner.

Today’s Philly Fed Survey did the Gomer Pyle this morning, surprising to the upside in a big way.  The index jumped 21.5 points to 22.5, the best reading since April 2005.  Manufacturing, specifically the new orders component did the trick, rising from -5.0 to plus 10.4.

GM’s IPO, making the stock market giddy, hasn’t helped either.  The big board is plus 180.  Technically, we talked about the chart looking corrective in nature.  That was the correct call as yesterday’s rally could not even get to the 38% retracement level, falling short by a couple of 32’s.  The failure to penetrate that resistance brought in selling and pushed the market back into a bearish trend.

We feel that near term price action will focus on further downside (higher Austin mortgage rates/worse pricing) as we have yet to find a bottom. If there is a ray of hope, it will be that the 10 year note can hold at or below 2.95% (currently 2.93%).  Best bet for Texas mortgage borrowers is to stay defensive. Before the market picks your pocket, lock your mortgage loans with the float down option (“option to lower your interest rate one time”)!

Stocks are not the reason as we are off 139 points on the big board.  PPI, inflation at the wholesale level, is not the culprit either as the print was up .4% headline and down .6% ex-autos, giving some cover for the Fed’s pressing QE2.  October Industrial production hung an egg (unchanged) and the National Association of Home Builders Index was up slightly yet not very impressive.  Even the Fed buying 5.4 billion in paper can’t plug the dam.

What you have here is a mentality surrounding QE2 that is worried about inflation, economic growth, Federal balance sheets, and was priced in “before” the operation took place.  Now we have fast money accounts (trading accounts, hedge funds, money managers, etc.) pressing the trade, blowing through technical support levels like a tsunami.  Studies are bearish on every time frame.

Given the economic backdrop (high unemployment, etc.) we feel this move is close to a bottom.  Trouble is, picking bottoms are like catching falling knifes, hard to do without some pain.  Best bet for Austin mortgage borrowers is to use the float down option (“option to lower your interest rate one time”) to guard against a reversal (rally).

Markets like this are dangerous and sometime do not follow logic.  If it looks like a bear and walks like a bear, it probably is a bear.

Currency wars is what this is all about and the Fed is getting exactly what it hoped for, consumer expectations of rising inflation to shut the door on deflation.  This was evidenced in last week’s Michigan Sentiment Survey.  With QE2 priced in “before” it happened and the negative connotations mentioned above, treasuries have continued to be slaughtered, sending credit costs higher, doing nothing to stimulate the economy.  Look for the Fed to try and talk rates back down.

So far today, that hasn’t been the case as Uncle Sam bought about 8 billion in paper with little to no effect.  10’s are trading at 2.85%, down 22/32’s on the day.  Mortgage backs are off 9/32’s and stocks are up 65 on the big board.

Retail Sales hit the tape up 1.2%, a touch better than expected.  Stripping out autos, the index was plus .4%.  Business inventories/Sales were also released, up .9% and up .5% respectfully.  The week ahead is a doozy, starting with inflation numbers (PPI and CPI) over the next two days.

Technically, the selling today has taken the chart below the October lows (high yield mark) and then rebounded ever so slightly.  Bearish readings and Trend Intensity are evident on every chart time frame.  The best we can hope for is that the October low will hold (good so far) and the market will begin to repair itself.  Odds are good for a rally based on oversold conditions along.  Just the same, this is not a market to mess with.  Until there is a sea change in the way traders view QE2, this version of Sonny and Cher’s “the beat goes on” will continue.

Benefits of HomePath Mortgage Financing:

• Low, 3% down payment can be made through a variety of resources:
  • Personal savings
  • Gift or grant
  • Loan from a nonprofit organization, state or local government, or employer
• Flexible mortgage terms (fixed-rate, adjustable-rate, or interest-only)
• Available to both owner occupants and investors
• You may qualify if your credit is less than perfect
• Financing can fund both purchase & light renovation
• No appraisal required
• No mortgage insurance

MORE HomePath FAQS: Click here to keep reading “HomePath Mortgage – Frequently Asked Questions”

My consultation is always free. If you or someone you know has questions, please contact me, Max Leaman:
512-293-1239 (Cell) and 512-617-5636 (Office).

PrimeLending has secured an exclusive agreement with investors, allowing me to offer FHA loans to borrowers with credit scores between 620 & 639 (and above).

Other lenders require a FICO credit score of 640 or higher for FHA loans.

I can close FHA loans in 30 days or less.

Have questions?

Visit: MaxLeaman.com

Email: MaxL@PrimeLending.com

Call: (512) 293-1239