For the week of December 28, 2009 – Vol. 7, Issue 52
>> Austin Mortgage Market Update

INFO THAT HITS US WHERE WE LIVE Last week presented us with divergent housing news. First, November Existing Home Sales came in UP 7.4%, at an annual rate of 6.54 million. This was way ahead of estimates and a 44.1% sales jump over a year ago. We had increases in all regions of the country, all due to single-family homes.

The median price went up to $172,600, down 4.3% from a year ago, but a big improvement from January, when prices were off 17.5% from the prior year. The supply declined to 6.5 months, as inventories fell to 3.52 million, their lowest level since December 2006. In the past three months, Existing Home Sales are up 28.5%. One more sign of housing market recovery came in a report that prices for homes financed with conforming mortgages increased 0.6% in October.

Now for the news in the other direction. November New Home Sales fell 11.3%, to an annual rate of 355,000. But November was an unusual month, with uncertainty over the tax credit slowing things down. New Home Sales are still UP 7.9% from January and inventories dropped in November to 235,000. This is the lowest level since 1971 and a 58.9% decline from the mid-2006 inventory peak. So even at this slower sales pace, experts feel home building will have to increase over the next few months to meet the demand that’s out there.

>> Review of Last Week

UP WE GO… Four days of trading saw gains in the Dow of 85, 50, 1.5 and 53 points. These amounted to a weekly gain of almost 2%, a strong move up. The other major indexes went up even more and all hit new 52-week highs, so some observers think we may be off on another bull run. Inspiring investor confidence were some good economic data points.

Tuesday, real growth in Q3 GDP was revised to a +2.2% annual rate from the previous +2.8% estimate. This was fine with investors, who saw that most of the downward revision was from lower inventory figures, which they feel should boost growth estimates for Q4. Hey, last January, the consensus forecast was only a +1.2% growth rate for Q3 GDP and +2% for Q4. And the odds were still 45% that the recession would last through the end of the year.

Wednesday, November Personal Income was up for the eighth month in a row, while the PCE inflation reading was up less than expected. The personal saving rate is at 4.7%, averaging 4.6% for the last 12 months. (It was less than 1% in early 2008!) The short week ended with an early Christmas present for the economy. Core capital goods shipments were up three months in a row, after October’s 0.3% decline was revised to a strong 1.5% rise. Some economists now feel real GDP growth may come in at a +5% annual rate for Q4!

For the week, the Dow was UP 1.9%, to 10520.10; the S&P 500 was UP 2.2%, to 1126.48; while the Nasdaq was UP 3.3%, to 2285.69.

As stocks continued their upward moves, bonds prices dropped for the week. Adding to the downward price pressure, investors are feeling the economic recovery is taking hold and now worry about longer-term inflation. The FNMA 30-year 4.5% bond we watch ended the week down 141 basis points, closing at $99.81. Mortgage rates inched up for the third straight week, but still remain at historically low levels.

>> This Week’s Forecast

A QUIET WEEK FOR SANTA CLAUS… The four days leading up to New Year’s are slim on economic news. Consumer Confidence looks at our mindset and the Chicago PMI gauges manufacturing, on the mend for several months now. The big thing to look for is a “Santa Claus Rally” sending stocks northward to finish the year. Stock and bond markets will be closed Friday for the holiday.

May you and yours enjoy a healthy, prosperous and Happy New Year!

>> 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 December 28 – January 1

Date Time (ET) Release For Consensus Prior Impact

Dec 29

10:00 Consumer Confidence Dec 53.0 49.5 Moderate

Dec 30

09:45 Chicago PMI Dec 55.1 56.1 HIGH

Dec 30

10:30 Crude Inventories 12/25 NA –4.84M Moderate

Dec 31

08:30 Initial Unemployment Claims 12/26 465K 452K Moderate

Dec 31

08:30 Continuing Unemployment Claims 12/19 NA 5.076M Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months. With last week’s benign inflation readings and revised Q3 GDP growth, experts feel the Fed will hold to their commitment to keep rates low for an extended period. 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
Jan 27 0%–0.25%
Mar 16 0%–0.25%
Apr 28 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Jan 27 1%
Mar 16 5%
Apr 28 11%
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