Austin Mortgage Blog

For the week of March 22, 2010 – Vol. 8, Issue 12

INFO THAT HITS US WHERE WE LIVE February housing starts were down 5.9%, to an annual rate of 575,000 units, but this was higher than consensus expectations and almost all the drop came from multi-family units. Single-family homes were off only 0.6% in February and are still up 39.8% over their low a year ago. Meanwhile, new building permits for February fell 1.6%, to an annual rate of 612,000, but that was also better than estimates and permits are still up an estimated 11.3% from a year ago. The experts all thought we’d see a MAJOR drop in home building given the record snow storms on the East Coast. But we didn’t. The Mortgage Bankers Association (MBA) estimates we’ll see 694,000 housing starts in 2010, a 20% hike from 2009 numbers.

At last week’s meeting, the Fed confirmed it would end its purchasing of mortgage-backed securities, as scheduled, on March 31. This buying program has helped keep interest rates historically low the past year. Even though the Fed will stop buying, they have no plans to sell the bonds they’ve bought, which may have put pressure on rates to go up. The MBA currently predicts rates to rise very gradually for the rest of the year and keep rising in 2011 and 2012. But let’s face it. If mortgages get into the 6% range, which is NOT being forecast until NEXT year, they would still be at a very attractive level which should in no way slow the housing recovery.

Buyers who want to take advantage of today’s low Austin mortgage rates AND the homebuyer tax credit should note they need to sign a contract by April 30 and close by June 30.

>> Review of Last Week

NOW THAT’S MORE LIKE IT… Investors felt good enough about the economy to push stock market indexes up for the week, landing them at their highest levels in over a year. There was a modest drop in the markets on Friday, with India’s central bank hiking rates a bit and continued concern over Greek debt. But, hey, stocks had already gone up eight days in a row by that point. And for good reason.

Tuesday the Fed didn’t touch the rate and their statement still predicted “exceptionally low levels of the federal funds rate for an extended period.” Corporations and investors like cheap money as much as you and I, so this kept stock prices heading up. We also had nice quarterly earnings from FedEx, Nike and Guess, plus General Electric‘s forecast of an earnings turnaround at GE Capital, their financial division.

Both the Consumer Price Index and the Producer Price Index came in below expectations, showing inflation remains in check. Initial unemployment claims met estimates. Industrial production, capacity utilization and the Philadelphia Fed Index of manufacturing all surpassed estimates. It’s interesting that in the last two weeks, the economic data has outperformed what you would have expected, given the harsh winter weather. Payrolls, retail sales, manufacturing measures and housing starts all beat expectations. Some observers now expect a payroll increase in March. Let’s hope they’re right.

For the week, the Dow was UP 1.1%, to 10741.98; the S&P 500 went UP 0.9%, to 1159.90; while the Nasdaq headed UP 0.3%, to 2374.41.

Investors focused on buying stocks for four days, though Friday the mood changed to selling. So bonds, which usually head in the opposite direction from stocks, finished with some strength. The FNMA 30-year 4.5% bond we watch ended the week virtually flat, off just 4 basis points from the week before, closing at $100.84. Average mortgage rates stayed at their historically low levels, as reported in last week’s Freddie Mac Survey.

>> This Week’s Forecast

HONING IN ON HOMES AND Q4 GDP… We’ll get a good look into the housing market with February Existing Home Sales on Tuesday and February New Home Sales on Wednesday. Friday the third estimate of Q4 GDP comes in. This will give us a more accurate read on the recovery’s first quarter of economic growth. Thursday, Chairman Ben Bernanke will give his rescheduled Congressional testimony on the Fed’s “exit strategy” for easing rates up from their current super-low levels.

>> 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 22 – March 26

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months Even though the Fed stuck to its “keep rates low for an extended period” mantra, the dissenting voices on the FOMC are getting louder. The economy is picking up even, though jobs still lag. So more experts think we’ll see a rate hike 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 February 22, 2010 – Vol. 8, Issue 8

INFO THAT HITS US WHERE WE LIVE Builders are jumping on the recovery bandwagon, as January Housing Starts beat consensus estimates, heading UP 2.8% to an annual rate of 591,000 units. Single-family starts are now 35.6% up from their low a year ago. Total new building permits dropped a tad in January, but single-family permits were up 0.4% for the month and UP 48.2% from a year ago.

The trend indicates more improvement ahead. Permits for single-family homes are 7.4% higher than starts in states requiring building permits, well above the historical norm. Many observers feel home building is in the early stages of a serious rebound. Supporting this, the National Association of Home Builders reported builder confidence higher in February, going from 15 to 17 points, 8 points up from a year ago.

Although the Fed will stop buying Mortgage Backed Securities (MBS) at the end of March, some analysts now feel this may not cause mortgage rates to rise much, if at all. That’s because Fannie Mae and Freddie Mac recently announced their plan to buy up to $200 billion in delinquent loans from their own MBS and pass-through pools. Friday the Mortgage Bankers Association reported the percentage of delinquent home loans shrank in Q4. MBA chief economist Jay Brinkmann feels that fewer new problem mortgages could be signaling the “beginning of the end” of the foreclosure crisis. Let’s hope so. 

>> Review of Last Week

UP UP UP UP… YUP, stocks went UP four days in a row, which constituted all the trading days there were in the holiday-shortened week. Investors seemed to be responding to a cessation of fears coming out of Europe, encouraging economic data, good corporate earnings and the news from the Fed.

The minutes from the Fed’s January FOMC meeting stated economic conditions still warrant low interest rates, although their GDP growth estimate went from 3.0% to 3.2% for the year. Then Thursday, as reported in an Inside Lending Bulletin, the Fed raised its discount rate on emergency loans to banks by 0.25%, to 0.75%. The discount rate is not the Fed funds rate and the central bank said the increase does not “…signal any change in the outlook for the economy or for monetary policy….” Some analysts feel the Fed was just trying to appease inflation “hawks”. The irony was, the CPI inflation reading came in the next morning below consensus expectations, up a scant 0.2%!

Earlier in the week, the PPI reading on wholesale inflation came in a little higher than expected, but this was balanced by the good news on housing starts, plus better-than-expected earnings from John Deere, Merck, Kraft, Hewlett-Packard and Wal-Mart. Equally encouraging, industrial production went UP 0.9% in January, putting it up at an 8.9% annual rate for the last six months. More evidence that manufacturing is at the heart of this recovery.

For the week, the Dow was UP 3.0%, to 10402.35; the S&P 500 was UP 3.1%, to 1109.17; while the Nasdaq climbed UP 2.8%, to 2243.87.

Stocks went up for the week, so can you guess which way bonds headed? Correct. The FNMA 30-year 4.5% bond we watch ended down 69 basis points, closing at $100.22. Mortgage rates, however, still held at their historically low levels.

>> This Week’s Forecast

HOMES, CONSUMERS, Q4 GDP… The week gives us more takes on housing, with New Home Sales on Wednesday and Existing Home Sales Friday. There are two looks at the consumer mindset as well, with Consumer Confidence on Tuesday and the University of Michigan Consumer Sentiment Index on Friday. Also Friday is the second GDP estimate for Q4, showing positive economic growth coming out of the recession. The week ends on another key manufacturing measure –the Chicago PMI.

>> 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 February 22 – February 26

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months The Fed discount rate went up last week, but experts say that doesn’t mean the Fed funds rate is moving any time soon. Please also note that discount rate moves are made by the district banks, not the Fed. With jobs still lagging in the recovery, economists feel the Fed funds rate will stay where it is through June. 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 February 1, 2010 – Vol. 8, Issue 5

INFO THAT HITS US WHERE WE LIVE The week began with December Existing Home Sales dropping 16.7%. Some observers felt this was the result of uncertainty over the homebuyer tax credit, scheduled to expire at the end of November. The tax credit was, as we now know, extended into this year, but it wasn’t announced soon enough to help December sales. Nonetheless, Existing Home Sales are UP 15.0% over a year ago. And the median price of an existing home is now $178,300, UP 1.5% over a year ago and the best year-over-year comp since 2006. Finally, inventories are now down to 3.29 million, their lowest reading since March 2006.

Wednesday, New Home Sales were reported at a 342,000 annual rate, down 7.6% for December. But inventories are now at 231,000, 59.6% below their mid-2006 peak and at their lowest level since 1971, when the population was two thirds its size today. The Case-Shiller index of home prices in the 20 biggest markets went up a seasonally-adjusted 0.2% in November. This was the sixth month in a row the index gained and prices increased in 14 of the 20 markets. The FHFA price index for homes bought with conforming mortgages went up 0.7% in November, its fifth advance in the last seven readings.

According to Freddie Mac’s weekly Primary Mortgage Market Survey, mortgage rates inched down for the fourth week in a row. But prospective homebuyers and owners looking to refinance should note that the Fed reiterated its intention to end mortgage bond purchases on March 31. Experts feel this will make rates head up a bit.

>> Review of Last Week

STILL SLIPPING… There were plenty of good things to consider last week, but investors chose to dwell on the negative tidbits instead. This sent stocks down for the third week in a row, making January the worst month for the markets since February 2009. The week began with Apple reporting its most profitable quarter ever. Microsoft and SanDisk also made the tech sector look good by beating earnings estimates, but Wall Street worried about the companies’ cautious outlooks. Oh well. We even saw Consumer Confidence UP in January for the third month in a row!

At its meeting last week, the Fed left the funds rate at 0% to 0.25% and altered the language of its policy statement to be more bullish on the economy. But there was one dissenting vote against keeping the rate low, which investors fretted over. That evening, President Obama’s State of the Union message didn’t include too many specifics on how he would help boost the economy. Stocks slid Thursday. December durable goods orders were up only 0.3%, but taking out transportation, they were UP 0.9% for the month and UP 11.9% annually for the last six months. History shows that once businesses begin investing more in equipment (“durable goods”), payroll gains soon follow.

Friday we got the terrific news that the U.S. economy grew in Q4 of last year at a 5.7% pace, the fastest GDP growth rate in six years. Pessimistic observers seem scared to admit the economy is in fact improving, commenting that inventories accounted for a large part of Q4 growth. In fact, final sales, which is GDP excluding inventories, are UP at an accelerating pace for three straight quarters! The Chicago PMI, expected to decline, instead increased, showing growing strength in Midwest manufacturing. And the employment index came in at the highest level since 2005, reporting its first positive number since 2007.

But for the week, the Dow dipped 1.0%, to 10067.33; the S&P 500 slipped 1.6%, to 1073.87; while the Nasdaq was down 2.6%, to 2147.35.

In addition to sliding stocks bringing new money into the bond market, we had month-end buying helping to push prices up. The FNMA 30-year 4.5% bond we watch ended UP 9 basis points for the week, closing at $101.03. Mortgage rates are still historically low, according to the most recent Freddie Mac report.

>> This Week’s Forecast

ANOTHER LOOK AT HOUSING AND JOBS… December Pending Home Sales will grab our attention on Tuesday, then Friday everyone will key on the January Employment Report. The consensus expects no change in the unemployment rate but does think we’ll see some new jobs added. That would be great! The week will also bring us the important ISM read on manufacturing, plus personal income and spending numbers.

>> 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 February 1 – February 5

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months Last week the Fed repeated its commitment to keep the Funds Rate at current low levels for “an extended period.” Ben Bernanke was then confirmed by the Senate for a second term as Fed Chairman by a 70-30 vote. Most economists think things will stay as they are. 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: