For the week of January 2, 2012 – Vol. 10, Issue 1

Happy New Year! 

>> Austin Mortgage Market Update 

QUOTE OF THE WEEK…“Of all the things you wear, your expression is the most important.” –Anonymous


INFO THAT HITS US WHERE WE LIVE…It’s good to show your best face to the world as the new year begins (see Business Tip of the Week, below) and that just got easier to do. Last week’s Pending Home Sales index from the National Association of Realtors (NAR) went UP 7.3% in November, hitting its highest level since April 2010! And that earlier reading was artificially boosted, as buyers rushed to beat the deadline for last year’s home buyer tax credit.


The NAR’s chief economist commented, “Housing affordability conditions are at a record high and there is pent-up demand from buyers who’ve been on the sidelines…. The sustained rise in contract activity suggests that closed existing-home sales…should continue to improve in the months ahead.” The S&P Case-Shiller index for October showed minor price drops in 19 of the 20 surveyed metro areas, but the index was UP 1.9% from its post-crisis low in March 2011.


BUSINESS TIP OF THE WEEK…The new year is a great time to remember that successful people think positive. They’re not unrealistic, but they do see the positive side of an opportunity and firmly believe in their ability to reach their goals.

>> Review of Last Week

GOODBYE, 2011!…The wild year on Wall Street ended not with a bang but a whimper, as stocks slumped slightly for the week on very light trading. Volatility was the theme for 2011, although when all was said and done, the broadly based S&P 500 stock index ended dead flat for the year. This reflects how many investors view the economy: recovering so slowly, its growth slope is practically horizontal. The year’s volatility was echoed in a 140-point drop Wednesday followed by a 136-point surge the very next day.


The week’s positive economic news included the Pending Home Sales gain covered above and initial jobless claims staying below 400,000 for another week. But none of this “good” news was very terrific, so economic emotions were held in check by the usual suspects: European debt worries and corporate underperformers. Sears announced it would close about 100 stores and American Airlines parent AMR Corp., which filed for bankruptcy protection last month, revealed its stock would be delisted from the Big Board. 


For the week, the Dow ended down 0.6%, at 12218 but UP 5.5% for the year; the S&P 500 also dipped 0.6%, to 1258 but was unchanged for the year; and the Nasdaq dropped 0.5%, to 2605 and was down 1.8% for the year.


Although it was a low volume week all around, the bond market behaved conventionally, prices heading north as stocks drifted south. The FNMA 3.5% bond we watch ended the week UP .95, at $102.27. According to Freddie Mac’s weekly survey, national average fixed mortgage rates inched up from the prior week’s record lows. But they’re expected to stay in super low territory for awhile.


DID YOU KNOW?…The FOMC Minutes released Tuesday give insight into the decision making process for monetary policy and what the Fed thinks about economic developments inside and outside the U.S.

>> This Week’s Forecast

MANUFACTURING, SERVICES, FED MINUTES, JOBS…The markets are closed today in observance of New Year’s, but the rest of the week is packed with economic data. ISM Manufacturing on Tuesday should remain in expansion territory just like ISM Services on Thursday. Tuesday’s FOMC Minutes from the Fed’s December 13 meeting may provide useful insight.


But the week’s highlight will be Friday’s December Jobs report.150,000 Nonfarm Payrolls should be added, which won’t do anything to help the Unemployment Rate, expected to creep back up to 8.7%.

>> 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 Jan 2 – Jan 6


 Date Time (ET) Release For Consensus Prior Impact
TuJan 3 10:00 ISM Index Dec 53.4 52.7 HIGH
TuJan 3 14:00 FOMC Minutes 12/13 NA NA HIGH
ThJan 5 08:30 Initial Unemployment Claims 12/31 375K 381K Moderate
ThJan 5 08:30 Continuing Unemployment Claims 12/24 3.620M 3.601M Moderate
ThJan 5 09:45 ISM Services Dec 53.0 52.0 Moderate
ThJan 5 11:00 Crude Inventories 12/31 NA 3.899M Moderate
FJan 6 08:30 Average Workweek Dec 34.3 34.3 HIGH
FJan 6 08:30 Hourly Earnings Dec 0.2% -0.1% HIGH
FJan 6 08:30 Nonfarm Payrolls Dec 150K 120K HIGH
FJan 6 08:30 Unemployment Rate Dec 8.7% 8.6% HIGH


>> Federal Reserve Watch   

Forecasting Federal Reserve policy changes in coming months…The expectation is for the Fed Funds Rate to remain at its rock bottom level well into the future. 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 25 0%–0.25%
Mar 13 0%–0.25%
Apr 25 0%–0.25%


Probability of change from current policy:


After FOMC meeting on: Consensus
Jan 25      <1%
Mar 13      <1%
Apr 25      <1%