For the week of April 5, 2010 – Vol. 8, Issue 14

>> Austin Mortgage Market Update

INFO THAT HITS US WHERE WE LIVE  The Case-Shiller home price index came in last week with nine out of the 20 cities in the survey posting year-over-year gains. On a seasonally adjusted basis, the 20-city composite index rose from December to January by 0.3%. The chairman of the index committee noted, “…we continue to see improvements in the year-over-year data for all 20 cities.” The report also stated,”annual rates for the two composites have not been this close to a positive (point) since January 2007.”

Another report showed that the price per square foot for homes in eight out of 25 U.S. markets rose in January compared to a year ago. Continuing the theme, a third survey revealed that 23% of real estate agents and brokers are expecting price hikes in the next six months.

Buyers who want to take advantage of the homebuyer tax credit (along with today’s low Austin mortgage rates and great prices) only have til the end of this month to sign a contract —  April 30 — and need to close by June 30. Finally, last Wednesday the Fed ended its $1.25 trillion buying program of mortgage backed securities, which helped keep mortgage rates down. Buyers should note that most industry observers expect those rates to creep back up.

>> Review of Last Week

FLIRTING WITH 11,000… To cross that threshold, the Dow only has to rise this week by the same 0.7% it went up last week, when investors pushed stocks UP for the fifth week in a row. Wall Street clearly saw more evidence that the U.S. economy might be capable of supporting the jobs growth we’ve been waiting for while we watched all the other signs of recovery go up.

Last week gave us a few of those other signs before we got the employment numbers on Friday. Disposable personal income was reported UP 2.8% in the last year, with consumer spending since September UP at a 3.3% annual rate. Maybe that’s whyConsumer Confidence zoomed UP from 46.4 in February to 52.5 for March, right past consensus expectations. ISM Manufacturing for March also exceeded expectations, hitting a 59.6, its best read in over five years.

Then Friday, with the markets closed for the holiday, the March employment report came in with nonfarm payrolls UP by 162,000 jobs PLUS upward revisions to the two prior months. Even better, 114,000 of these new jobs were in the private sector, NOT the government census jobs that were expected to provide the bulk of the boost. Average workweek and temporary employment both increased, which economists see as leading indicators for even more hiring activity. The unemployment rate held at 9.7%, because of labor force growth.

For the week, the Dow headed UP 0.7%, to 10927.07; the S&P 500 was UP 1.0%, to 1178.10; while the Nasdaq went UP 0.3%, to 2402.58.

The bond market slid for the week, with Friday’s positive Jobs Report having a final negative impact on prices. This downward pressure may continue this week, with a ton of supply on offer. The FNMA 30-year 4.5% bond we watch ended down 94 basis points for the week, closing at $99.47. Average mortgage rates inched up a little and, as noted above, they’re not expected to remain at historically low levels a whole lot longer.

>> This Week’s Forecast

HOUSING AND A LOOK INTO THE FED… We’ll see Pending Home Sales on Monday along with the ISM Services Index, which will give us a read on non-manufacturing businesses. Economists will also be dissecting the Minutes of the last Fed meeting on March 16 for more insight into the economy and any indicators of when the Fed Funds rate might head 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 5 – April 9

Date Time (ET) Release For Consensus Prior Impact
Apr 5
10:00 ISM Services Index Mar 53.6 50.0 Moderate
Apr 5
10:00 Pending Home Sales Feb -1.0% -7.6% Moderate
Apr 6
14:00 Minutes of FOMC meeting 3/16 NA NA HIGH
Apr 7
10:30 Crude Inventories 4/3 NA 2.93M Moderate
Apr 8
08:30 Initial Unemployment Claims 4/3 433K 439K Moderate
Apr 8
08:30 Continuing Unemployment Claims 3/27 NA 4.662M Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months  With last week’s encouraging Employment Report, economists are beginning to look for a hike in the Fed funds rate in 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%

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 5%
Aug 10 20%