For the week of April 12, 2010 – Vol. 8, Issue 15

>> 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

Date Time (ET) Release For Consensus Prior Impact
Tu
Apr 13		 08:30 Trade Balance Feb –$39.0B –$37.3B Moderate
W
Apr 14		 08:30 Consumer Price Index (CPI) Mar 0.1% 0.0% HIGH
W
Apr 14		 08:30 Core CPI Mar 0.1% 0.1% HIGH
W
Apr 14		 08:30 Retail Sales Mar 1.1% 0.3% HIGH
W
Apr 14		 08:30 Retail Sales ex-auto Mar 0.5% 0.8% HIGH
W
Apr 14		 10:00 Business Inventories Feb 0.3% 0.0% Moderate
W
Apr 14		 10:30 Crude Inventories 4/10 NA 1.98M Moderate
Th
Apr 15		 08:30 Initial Unemployment Claims 4/10 440K 460K Moderate
Th
Apr 15		 08:30 Continuing Unemployment Claims 4/3 4.600M 4.550M Moderate
Th
Apr 15		 09:15 Industrial Production Mar 0.7% 0.1% Moderate
Th
Apr 15		 09:15 Capacity Utilization Mar 73.3% 72.7% Moderate
Th
Apr 15		 10:00 Philadelphia Fed Index Apr 20.0 18.9 HIGH
F
Apr 16		 08:30 Housing Starts Mar 610K 575K Moderate
F
Apr 16		 08:30 Building Permits Mar 626K 637K Moderate
F
Apr 16		 09:55 Univ. of Michigan Consumer Sentiment Index Apr 75.0 73.6 Moderate

>> 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%

After FOMC meeting on: Consensus
Apr 28 0%–0.25%
Jun 23 0%–0.25%
Aug 10 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Apr 28 <1%
Jun 23 7%
Aug 10 25%