For the week of February 28, 2011 – Vol. 9, Issue 9
>> Austin Mortgage Market Update  

QUOTE OF THE WEEK…“We would like to live as we once lived, but history will not permit it.”–John F. Kennedy

INFO THAT HITS US WHERE WE LIVE…Things do keep changing, but we all hope that by and large those changes mean progress. We certainly saw evidence of that in the housing market last week, as Existing Home Sales headed up in January for the third month in a row. They’ve now reached a 5.36 million annual rate, close to the long-term trend of 5.5 million and up over 5% from a year ago. This, as Martha Stewart says, is “a good thing,” since the supply of existing homes has now dropped to 7.6 months, close to the 6-month ideal, which favors neither buyers nor sellers.


The Case-Shiller home price index for the 20 largest metros was down in December, its sixth straight monthly decline since the tax credit ended. The media seemed thrilled to announce a “double dip” in housing prices, probably because they’ve been unable to use their “double dip” catch phrase for anything else. The facts, as usual, tell another story. Case-Shiller was down just 2.4% for the year, its smallest drop since the 2006 price peak. And some observers anticipate modest price gains this year. New Home Sales did fall 12.6% in January, which may have been due to the bad weather, though sales were up in the Northeast and Midwest and down in the West and South. Go figure. Inventories are now at their lowest level since 1967.

BUSINESS TIP OF THE WEEK…Targeting is a powerful business strategy. Don’t try to be all things to all people. Pick a niche. The secret to broadening your appeal often lies in narrowing your focus.

>> Review of Last Week

BULLS TAKE A BREATHER…Everyone on Wall Street had Presidents Day off Monday but the bulls never really showed up for work the rest of the week either. Well, bulls did stage a bit of a comeback on Friday, but it wasn’t enough to bring stock prices up to where they were the week before. So after three weeks of charging higher, the markets fell off, as all three major indexes went south for the week.


The Middle East continues to trouble investors, with Libya the latest focal point for that region’s violent uprisings. There was a sympathetic jump in oil prices, never a good development for our economy, and the week ended with the second estimate for Q4 GDP revised DOWN to a 2.8% growth rate from the original 3.2%. Weighing in against these negatives, the latest Consumer Confidence Report showed people’s attitudes about the economy are actually growing more upbeat. The Richmond Fed index showed robust manufacturing growth in the important mid-Atlantic region. And initial jobless claims went below 400,000 for the week, while continuing claims remain under 4 million.

For the week, the Dow ended down 2.1%, at 12,130; the S&P 500 was down 1.7%, to 1,320; and the Nasdaq was off 1.9%, ending at 2,781 .


Bond prices benefited from both increased tensions in the Middle East and the drop in GDP. The flight to safety helped the FNMA 4.0% bond we watch end decidedly up for the week, closing at $98.17. Mortgage rates eased a tad lower again. Freddie Mac’s weekly survey of conforming mortgages showed national average fixed-rate mortgage rates staying down near historic lows.

DID YOU KNOW?…Mortgage interest rates are based on Mortgage Backed Securities (MBS), also called mortgage bonds. When bond prices go up, mortgage rates go down, but when bonds drop, rates rise.

>> This Week’s Forecast

STEADY AS SHE GOES…This week there’s a wide range of economic news, but it’s all expected to be a bit bland. Core PCE Prices, the Fed’s favorite inflation measure, should drift up a little, but stay well within the target range. The ISM and Chicago PMI indexes are forecast to show manufacturing growing, though at no faster a rate. Pending Home Sales, a measure of signed contracts for closings a few months out, should be down a bit in December after being up a bit the previous month. Q4 Productivity is expected to hold steady.


The big news of course will be the February Employment Report come Friday. But again, steady progress is predicted, not the dramatic boost in jobs we need. With 180,000 new jobs forecast, the unemployment rate will actually inch up because of workforce expansion.

>> 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 28 – March 4


Date Time (ET) Release For Consensus Prior Impact

Feb 28

08:30 Personal Income Jan 0.3% 0.4% Moderate

Feb 28

08:30 Personal Spending Jan 0.4% 0.7% HIGH

Feb 28

08:30 Core PCE Prices Jan 0.1% 0.0% HIGH

Feb 28

09:45 Chicago PMI Index Feb 67.5 68.8 HIGH

Feb 28

10:00 Pending Home Sales Dec –3.2% 2.0% Moderate

Mar 1

10:00 ISM Index Feb 60.5 60.8 HIGH

Mar 2

10:30 Crude Inventories 2/26 NA 0.822M Moderate

Mar 3

08:30 Initial Unemployment Claims 2/26 400K 391K Moderate

Mar 3

08:30 Continuing Unemployment Claims 2/19 3.800M 3.790M Moderate

Mar 3

08:30 Productivity–Rev. Q4 2.7% 2.6% Moderate

Mar 3

10:00 ISM Services Feb 59.0 59.4 Moderate

Mar 4

08:30 Average Workweek Feb 34.3 34.2 HIGH

Mar 4

08:30 Hourly Earnings Feb 0.2% 0.4% HIGH

Mar 4

08:30 Nonfarm Payrolls Feb 180K 36K HIGH

Mar 4

08:30 Unemployment Rate Feb 9.1% 9.0% HIGH


>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months…There are more rumblings about inflation, which could send the Fed Funds Rate heading north, but not while the jobs recovery is proceeding at such a snail’s pace. For the first half of the year, economists think there is virtually zero likelihood of a rate hike from the Fed. 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
Mar 15 0%–0.25%
Apr 27 0%–0.25%
Jun 22 0%–0.25%


Probability of change from current policy:


After FOMC meeting on: Consensus
Mar 15 <1%
Apr 27 <1%
Jun 22 <1%