For the week of September 20, 2010 – Vol. 8, Issue 38

INFO THAT HITS US WHERE WE LIVE Fannie Mae released a housing survey showing 70% of those polled in June and July feel now is a good time to buy a home. This is up from a 64% reading in January. At the same time, 83% of those people surveyed think it’s a bad time to sell, which isn’t such a terrible thing, since there’s still plenty of inventory for buyers to choose from.

Another group of industry observers concluded that sales of existing homes hit bottom in July and will rebound in the fall. They based this on recent reports for purchase mortgage applications and pending home sales, which track signed purchase contracts for existing homes.

The fact remains, homes are now more affordable for more people than they’ve been in years. And today’s historically low Austin mortgage rates make monthly payments much easier to work into the family budget. Prices may have bottomed out indeed. The S&P/Case-Shiller Home Price Indexes show that nationally, home prices are 3.6% above levels a year ago. For buyers who expect to live in their home a while, many observers feel this is clearly a very smart time to purchase.

>> Review of Last Week

UP YET AGAIN… For investors on Wall Street, positive feelings continue to prevail over negative vibes and uncertainties, as stocks closed higher for the third week in a row. All the major market indexes were up, with the extra strength of the tech sector pushing the Nasdaq up well over 3%. In addition, all three indexes are now UP for the year.

Worrying investors, and everyone, were things like Thursday’s report that the U.S. poverty rate was at a 16-year high. Other data showed that real median household income last year was essentially unchanged over 2008. No surprise then that Friday’s University of Michigan Consumer Sentiment Index came in at its lowest level since August a year ago. The day before, the Producer Price Index reported wholesale inflation a bit higher than anticipated, which got some analysts concerned that consumers might see price hikes next.

Those fears were quelled Friday with Consumer Price Index (CPI) readings that had inflation well under control at the retail level. And the 1.1% year-over-year gain in the CPI showed that those who feared deflation have nothing to worry about for now. Other encouraging signs included a rise in Industrial Production for August that met expectations and August Retail Sales that beat forecasts, evidence that consumers may be worried, but they’re still spending!

For the week, the Dow ended UP 1.4%, to 10607.85; the S&P 500 was UP 1.4%, to 1125.59; and the Nasdaq was UP 3.3%, to 2315.61.

It was another mixed week in the bond market, but prices held up enough. The FNMA 30-year 4.0% bond we watch ended a mere 5 basis points ahead for the week, closing at $102.09. National average mortgage rates continue at historically low levels, though some observers do expect them to move up a little by the end of the year. 

>> This Week’s Forecast

WOO-HOO, HOUSING AND THE FED!… This week features our two favorite topics. The Fed’s an easy forecast, as virtually no one breathing thinks they’ll hike the Funds Rate at their meeting on Tuesday. As usual, however, their policy statement will bear scrutiny, as analysts look for signals that the rate could rise any time soon.

Tuesday’s August Housing Starts should finally show a slight uptick in activity. August Building Permits are also expected to be up a little, even though home builders remain cautious. Some experts feel we’re starting to turn the corner in housing, as a bit of growth is predicted in Thursday’s August Existing Home Sales and Friday’s August New Home Sales. 

>> 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 Austin loan rates.

Economic Calendar for the Week of September 20 – September 24

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months Last week’s Consumer Price Index report showed inflation still under control. So with economic growth slowing, economists overwhelmingly believe the Fed will keep rates where they are at this week’s FOMC meeting and well into 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:

Tomorrow will be “the day” as the monster Employment Report for August will be released (7:30 am cst).  Not only is it the highest profile report of the month, but given the mixed economic data and volatile trading of late, everyone will be focused like a laser on this one.  I would not be surprised to see a 250 to 300 point swing on the Dow tomorrow.  Trouble is, which way?  Tactical bias points to soft numbers, something in the neighborhood of minus 100K jobs and the unemployment rate to print 9.7%.

Today’s trade is a continuation of yesterday’s selling, albeit at a slower pace.  10 year note off 11/32’s, mortgage backs off 11/32’s in low note rate conventional, and stocks up a few points on the day.  Expect the day to be one of “squaring up” for traders in both bonds and stocks, with not much movement seen from current levels.  Best bet for Austin mortgage borrowers is to lock in their interest rate.  It just makes cents (and dollars too).

For the week of July 5, 2010 – Vol. 8, Issue 27

INFO THAT HITS US WHERE WE LIVE Last Thursday pending home sales, a measure of contracts signed for existing homes, were reported off 30% in May compared to the prior month. This of course was simply the result of the end of the homebuyer tax credit, which required a signed contract by April 30. Common sense tells us many of those April contracts would have happened in May or even later if it weren’t for the pressure to qualify for the tax credit.

More good news on the price front, as the Case-Shiller home price index was UP 0.4% in April, seasonally-adjusted, and up a comfortable 3.8% versus a year ago. Case-Shiller tracks home prices in the 20 largest metro areas. This follows the prior week’s FHFA home price index, which was UP 0.8%  for April for homes financed with conforming mortgages. Buyers take note.

Friday, the President signed into law a bill that extends the closing deadline for claiming the federal homebuyer tax credit to September 30. The National Association of Realtors estimated that up to 180,000 homebuyers in contract by April 30 could have missed the June 30 closing because of processing delays due to the huge volume of buyers seeking the tax credit.

>> Review of Last Week

OFF AGAIN… Investors were back in worry mode last week, still concerned about European debt and the speed (or lack thereof) of our own economic recovery. At the Group of Twenty meeting in Toronto, the financial leaders of the world’s largest economies didn’t say or do much to raise spirits on Wall Street. So stocks slid another week, as investors sold off their equity holdings and sought safer places to put their money.

The week began with May personal income UP 0.4% and personal spending UP 0.2%. For the last six months, personal income is UP 4.6% annually and spending UP 3.8% annually. Overall PCE (consumer inflation) was flat for May, up only 0.9% annually for the last six months. Thursday brought the pending home sales data covered above. This was followed by the ISM index showing manufacturing still grew strongly in June, though slightly below May’s reading.

Friday’s employment numbers showed a drop of 125,000 jobs for June but April/May revisions added 25,000, so the net loss was 100,000. Furthermore, as the President himself pointed out that morning, the report “…reflected the planned phase out of 225,000 temporary Census jobs, but it also showed the sixth straight month of job growth in the private sector. All told, our economy has created nearly 600,000 private sector jobs this year.” Finally, the unemployment rate, expected to edge up a tad, dropped from 9.7% in May to 9.5% for June.

For the week, the Dow ended down 4.5%, to 9686.48; the S&P 500 was down 5.0%, to 1022.58; and the Nasdaq was down 5.9%, to 2091.79.

Bond prices continue to benefit as economic nervousness about the slowness of the jobs part of our recovery has investors seeking the safe haven of bonds. The FNMA 30-year 4.0% bond we follow did well, UP 47 basis points for the week, ending at $101.28. National average rates on three of the four mortgage types tracked by Freddie Mac’s weekly survey reached record lows for the second week in a row.

>> This Week’s Forecast

QUIET AFTER THE HOLIDAY… The shortened post-4th-of-July week will allow us to quietly recover from the pyrotechnic celebrations without a lot of economic data to distract us. Tuesday’s ISM Services is expected to show the services part of our economy continuing to expand. Initial and Continuing Unemployment Claims figures will hold our interest after last week’s monthly Employment report, and they are expected to drop.

>> 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 July 5 – July 9

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months As we still lack strong indicators of a recovery in jobs, virtually all economists believe the Fed will keep rates low, probably through the end 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:

In the glass half full category, Ford, Chrysler, and GM all posted sales gains as that sector starts to stabilize.  Currently, stocks are off 61 points on the big board, 10 year note is plus 8/32’s, and mortgage backs are off 2 to 5/32’s, depending on the interest rate.  As I have talked about in the past, money flows are coming out of foreign sovereign debt and into treasuries.  Trouble is, that’s as far as the money goes.  Risk/reward is moving more and more towards risk in MBS, corporate paper, and anything other than an instrument backed by the full faith of Uncle Sam.  With stocks trading firmly below 1040 on the S&P chart, investors are net bearish, looking for a pull back to 940/970.  That would clip the Dow for 1 large.  Add to it the uncertainty of tomorrow’s Employment Report and all you see is traders with a fist full of scared money.

Speaking of the jobs number, the call is for job losses of 100K.  We’ll preview the report later today.  Given what we know, we see the pull back in mortgage paper (higher Austin mortgage rates,  lower pricing) as nothing more than consolidation, expecting that it will not become a major reversal.  However, we are seeing a divergence set up on the daily chart, telling you that a least a pause is in order until tomorrow’s fireworks begin (7:30 am cst).

With risk reward not in your favor, Austin borrowers are advised to lock in their Austin mortgage interest rates and step aside as we’re not sure whether the light in the tunnel is the end or a train.

FHFA (home price index) was plus .8% in April, reversing a two month slide.  On balance, housing looks to be stable but guarded.  Pimco strategist, Richard Clarida is on the wire talking about the Fed changing their language in tomorrow’s policy statement.  The change is regarding the economy as “sluggish” from stable, noting that since April, world and US economies have softened.  We have treasury paper coming to auction as well.  2’s today, 5’s tomorrow, and the 7 year note on Thursday.  Shouldn’t be a problem here.

We also got a peek at early predictions of month end extension needs.  Those are for money funds, etc. that much adjust to meet the Barclay’s index.  Extension needs for June look to be a bit larger than normal with the treasury complex needing to add .6 years and MBS .10 years.  In a nut shell, this will create buying in fixed income, adding support to Austin mortgage pricing.  Technically, the bias is neutral looking to buy weakness and sell strength.  Nothing new here as this has been the trend for the past several sessions.

For the week of June 7, 2010 – Vol. 8, Issue 23

INFO THAT HITS US WHERE WE LIVE The National Association of Realtors (NAR) reported the Pending  Homes Sales index rose in April for the third month in a row, registering a 6% increase over the upwardly revised March figure. This index measures the number of homebuyers signing purchase contracts. April Pending Home Sales hit their highest level since October 2009 and are UP 22.4% year-over-year. Like Existing and New Home Sales the week before, a good part of the gain was put to the tax credit expiration that required a signed contract by April 30. The NAR also forecast new home sales will be UP 18.5% for the year.

April construction increased 2.7%, its fastest gain in a decade. This includes commercial, government, and home construction. Home improvements led the residential gain, but new single-family homes were up as well, showing increased confidence among homebuilders.

>> Review of Last Week

SUMMER SLUMP… The Memorial Day-shortened trading week ended with a slump in stocks on Friday. This was driven by concerns that Hungary may default on its debt, followed by the May Employment Report, whose payroll numbers were lower than expected and had investors selling off big time. The Dow lost over 300 points on the day and all three major indexes were down for the week.

The facts did not actually justify such extreme investor reaction. No U.S. bank has major exposure to European debt and Europe accounts for only a minor percentage of our export business. Yes, the employment report showed a headline payroll number below expectations, with the private sector adding just 41,000 jobs. But the average workweek went from 34.1 to 34.2 hours. If hours per worker had remained the same, that extra labor demand would have created 315,000 more private sector jobs. For the moment, employers are clearly preferring to meet rising labor needs with more hours for existing workers, rather than new hires. Ignored in all the negative hoopla was the DROP in the unemployment rate to 9.7%, which beat expectations.

Before Friday’s market slide, other economic data had sent stock prices up. We had the great Pending Home Sales gain covered above. The ISM Manufacturing index continued to show strength in that sector, hitting levels not seen since 2004, while the ISM Services index showed non-manufacturing business at its highest level in almost four years. And final Q1 productivity came in at a 2.8% annual growth rate, UP 6.1% from a year ago.

For the week, the Dow ended down 2.0%, to 9931.97; the S&P 500 was down 2.3%, to 1064.88; and the Nasdaq was down 1.7%, to 2219.17.

Bonds blasted skyward on Friday fueled by the goulash coming out of Hungary, then boosted further by the lower than expected payroll numbers. The flight to safety benefited the FNMA 30-year 4.5% bond we watch, which closed UP 66 basis points for the week, ending at $102.69. National average mortgage rates held at their historic levels for another week, according to Freddie Mac’s weekly survey.

>> This Week’s Forecast

CONSUMERS WEIGH IN… This is a fairly quiet week for economic data, but we’ll have a good look at the consumer’s participation in the recovery with Friday’s May Retail Sales. The June Michigan Consumer Sentiment index will follow. Expectations are for continued improvements in these numbers. Initial and Continuing Unemployment claims will also be watched closely given last week’s jobs report. Thursday’s April Trade Balance will show us the strength of U.S. business in the global economy.

>> 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 June 7 – June 11

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months With jobs still not enthusiastically joining the rest of the recovery, most economists now feel we’ll be in a low-rate environment for a considerable period of time. 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:

Earlier today, Pending Home Sales hit a 6 month high, up 6.0%.  Funny what 8K can do to a person.  Every region of the country except the South had nice gains.  The Northeast led the way at plus 29.5%.  For the most part, we continue this risk aversion trade, continuing to struggle with European debt issues and softening growth in China.  On the debt front, those sick and hurt countries need to roll over 30 billion Euro in debt this month and 500 billion in July.  I wonder who will show up to buy the paper.

At home, the economic data continues to show stability and slight growth as the days and  weeks pass.  Friday’s Employment data will be huge.  Some are calling for as much as 600K new jobs created.  Keep this in mind today and tomorrow as a print of that magnitude will raise holy H E double hockey sticks with Austin mortgage pricing. Be square or beware.  We’ll handicap the report tomorrow.

Technically, the chart is telling us to be cautious.  Sellers have been dominate the past two days, pushing sell signals into play on the daily 10 year note chart.  Oscillators have rolled over to the bearish camp as well, stalling from midrange levels.  Nothing huge here but a bearish feel is setting up and into payrolls, we could see traders square up, pushing yields a touch higher.  With the run we’ve had, best bet is not to throw caution to the wind come Friday morning’s data.

Austin borrowers have seen how powerful the exclusive PrimLending Float Down Program can be.  Use it.

For the week of May 10, 2010 – Vol. 8, Issue 19

INFO THAT HITS US WHERE WE LIVE Last Tuesday the National Association of Realtors reported pending home sales were UP 5.3% in March over February, and UP 21.1% over March of last year. This gain in contracts on existing homes, following February’s 8.3% rise, indicates a nice boost should be coming in existing home sales for April. Buyers who signed contracts before the end of March now have till the end of June to qualify for their homebuyer tax credit.

In other news, a major mortgage insurance company reported the risk of a decline in home prices decreased in the last quarter of 2009 in 93% of the 384 markets they track. They put this decrease to declining foreclosure starts and improved affordability, thanks to attractive prices, low  mortgage rates and increasing personal income.

>> Review of Last Week

GREECE, GLITCH, GULP!… The European fiscal situation remained up in the air last week, and Greek protesters made it seem like their government would have real problems selling them the belt-tightening measures a bailout would require. This uncertainty sent stock prices sliding, although some saw this as just a normal market correction after a big bull run.

Then Thursday the sell-off quickly steepened, as stocks fell about 500 points in a matter of minutes thanks to what the exchanges later explained as a “trading glitch.” Apparently, today’s computerized trading can trigger precipitous price drops when buyers become scarce during big automated sell-offs. Prices rebounded in another ten minutes but the Dow still ended down over 300 points. A correction is a 10% drop and the indexes were well on their way there by the end of the week.

All this distracted everyone from the great economic data. Personal income and spending were UP in March. PCE consumer inflation rose just 0.1%. ISM Manufacturing was at its highest level since 2004, while ISM Non-Manufacturing expanded four months in a row. Productivity is up at a 6.3% annual rate the last 12 months, its fastest pace in almost 50 years. Friday we found out 290,000 new jobs were created in April. February/March revisions added 121,000, so the net April gain is 411,000 jobs. In the last four months, civilian employment, which includes self-employed and start-ups, grew by 1.9 million, better than any time during the late 1990s boom. The jobless rate went to 9.9%, all from unusually rapid growth in the labor force, expected to slow.

For the week, the Dow ended down 5.7%, to 10380.43; the S&P 500 was down 6.4%, to 1110.88; and the Nasdaq was off 7.9%, to 2265.64.

The bond market certainly benefited from investors’ flight to safety. Unsafe situations ranged from Greece to Wall Street with its down-sliding stocks. Even with the extra-good payroll gains on Friday, bond prices held. The FNMA 30-year 4.5% bond we watch closed UP 66 basis points for the week, ending at $101.50. Freddie Mac’s weekly survey reported national average fixed-rate mortgages at their lowest levels in six weeks.

>> This Week’s Forecast

CONSUMERS CHECK IN… Not a lot of economic data coming in this week, although we will have the important Retail Sales numbers in for April along with Michigan Consumer Sentiment for May. These will happen Friday, but on the way there expect more discussion around and reaction to European financial issues. These of course rile investors, although the economic data on this side of the pond supports the idea of a recovery that’s building very nicely thank you.

>> 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 May 10 – May 14

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months With the recovery strengthening, a few more economists now see a rate hike in the second half of this year. Of course, inflation remains in check, so Chairman Bernanke can certainly keep rates low for a while longer. 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:

We did have a couple of pieces of economic data today.  Pending Home Sales jumped 5.3%.  Credit the 8K buyers bonus for this one.  Sales rose 13% in the South, 2% in the West, 1% in the Midwest, and fell 3.3% in the Northeast.  Factory Orders were also on the move, up 1.3% as capital equipment and petroleum drove the numbers.  The print was the largest jump in nearly two years.  Strong economic data has taken a back seat to the Greek impact on debt.  Traders are calling this “panic buying” as money and safety are joined at the hip.  Technically, 10 year note futures have broken above the regression channel that has had a lid on the market for over a month.  With futures trading at 108 06 (yield equivalent is 3.63%), the market is below the old resistance of 4.65% which points to further upside (rally) ahead.  Keep in mind that when moves happen this quickly ( 10 year up 21/32’s and 30 year up 48/32’s) that oscillators and other studies will need time to catch up.

We expect at least a pause but most likely a little consolidation from current levels before another attempt to rally can occur.  We would not like to see the market close above a yield of 3.65% as that level is now support.  With stochastics and moving average crosses, odds are good we’ll push to lower yields and better Austin mortgage pricing.  Improving economic conditions being trumped by a country one fifth the size of Texas.  Go figure.

>> Austin Mortgage Market Update

INFO THAT HITS US WHERE WE LIVE  Last week February Pending Home Sales blasted past consensus estimates. The National Association of Realtors (NEA) index was UP 8.2% for the month and UP 17.3% year-over-year!

The NEA also released an upwardly revised long-term forecast. They now project the median price for existing homes to be UP 2.7% to $177,200 for 2010, then UP 4.3% to $184,800 in 2011. They also put the median price for new homes UP 2.7%, to $221,700 for 2010, then UP 5.1% to $233,100 in 2011. Interestingly, a separate monthly survey of MLS data in 26 markets found the median for-sale price of homes UP 1.07% in March, to $263,753.

A new national Fannie Mae survey on housing attitudes revealed 65% of Americans still prefer owning a home, in spite of the economic situation we’ve experienced. Fannie Mae CEO Mike Williams said: “… Americans continue to value homeownership and think about their homes in ways that go much deeper than the financial investment.” He further reassured us, ”The public also strongly believes in the importance of upholding the financial commitment involved…even during these challenging times….”

>> Review of Last Week

SIX IN A ROW… That’s how many weeks in a row stocks have finished UP, as investors clearly see signs the economy is recovering, if not quite taking off just yet. We’ll soon have first quarter corporate earnings reports coming in and the expected profit gains should keep things going in the right direction.

The week began on a positive note as investors digested the March Employment Report that came out the previous Friday. Those numbers revealed the net payroll gain for March was 224,000, when you added in the 62,000 jobs from the upward revisions to January/February. This wasn’t a one-month spike, either. Civilian employment (a reading that includes self-employed and new start-up businesses) has grown 452,000 per month the last three months. The diffusion index showed 60% of industries added to March payrolls, indicating a broad-based jobs recovery. Finally, the unemployment rate stayed at 9.7% because the labor force grew at a super-fast 2.9% annual rate the last three months. When that returns to its normal 1% growth rate, unemployment is expected to trend downward.

Also on Monday, the March ISM Non-Manufacturing index blasted past expectations, hitting a 55.4, its highest level in almost four years. This was followed by the above-mentioned Pending Home Sales number that also zoomed past expectations. Finally,auto and light truck sales hit an 11.8 million annual rate in March, UP 21% over a year ago.

For the week, the Dow headed UP 0.6%, to 10997.35; the S&P 500 was UP 1.4%, to 1194.37; while the Nasdaq went UP 2.1%, to 2454.05.

Bonds ended the week in reasonably good shape, with some well-received large auctions keeping prices supported through the week. The FNMA 30-year 4.5% bond we watch wound up ahead 22 basis points for the week, closing at $99.69. Average mortgagerates moved up again last week, as reported in Freddie Mac’s survey, though they still remain at attractive levels — for now!

>> This Week’s Forecast

WILL PRICES GO UP AS HOMES GO UP?…  We’ll see the March Consumer Price Index (CPI) on Wednesday, which tells us if prices are on the rise. This of course could send the Fed Funds rate up, but so far inflation has remained in check. To see how many homes are going up, the week ends with March Housing Starts and Building Permits.We also check in again on the consumer’s participation in the recovery with March Retail Sales on Wednesday.

>> 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 12 – April 16

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months  Economists are clearly not looking for an increase in the Fed funds rate near term, but sentiment is building for a hike in the second half of the year, perhaps as early as August. 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: