For the week of July 11, 2011 – Vol. 9, Issue 28
>> Austin Mortgage Market Update 

QUOTE OF THE WEEK…“Don’t judge each day by the harvest you reap but by the seeds that you plant.”–Robert Louis Stevenson

 

INFO THAT HITS US WHERE WE LIVE…It finally appears seeds are being planted for a housing recovery. Fannie Mae’s monthly survey reported that Americans expect home prices to drop just 0.5% in the next year. Some reported this as a negative because a 0.7% price gain was expected last month. But other analysts see this as a bottom, and those surveyed agree, as the majority (69%) believe it’s a good time to buy a home.

 

A MacroMarkets LLC study echoed this. More than 50% of the economists, real estate experts and investment strategists polled said they expect a bottom for national home prices this year. Almost two thirds of the respondents felt our residential real estate market is at an historic turning point.

 

The Wall Street Journal also reported this could be a good time to buy. The reasons? Mortgage rates are near 50-year lows; inventories are supporting a buyer’s market; and homes are more affordable than they’ve been in years. Moody’s calculates the ratio of home prices to income is now 20.9% lower than the 15-year average up through 2010.

 

Finally, the Mortgage Bankers Association reported demand for purchase loans was UP 4.8% from the week before and UP 11.7% from a year ago.

 

BUSINESS TIP OF THE WEEK…Develop a business plan. Set down your goals and how you will achieve them. Then measure your performance at the end of the year and refine the plan, building on your successes and adjusting for changes in the marketplace.

>> Review of Last Week

JOBS DOWN, MARKETS UP…The bulls charged as stocks gained for the first three days of the holiday-shortened week. Then Friday morning the June Employment Report showed jobs down on every front. The markets dipped for the day, but ended up for the week. The downer? A piddling 18,000 nonfarm payrolls were added last month and April and May payrolls were revised lower, while the unemployment rate went to 9.2%. The economy certainly hit a “soft patch” in Q2.

 

There was, however, positive labor news. New unemployment claims fell 14,000 for the week and continuing claims were down 43,000 to 3.681 million, the second lowest level in the recovery. Retailers delivered some solid same-store sales reports, so consumers are indeed spending. The ISM Non-Manufacturing Index declined for the month, but is still above 50, so the service sector continues to expand.

 

For the week, the Dow ended UP 0.6%, to 12657; the S&P 500 was UP 0.3%, to 1344; and the Nasdaq was UP 1.6%, to 2860.

 

Bonds got hammered as investors sold off to join the stock rally. But the disappointing June payrolls report helped prices recover on Friday. The FNMA 4.0% bond we follow ended the week up .94, at $100.19. National average rates on fixed-rate mortgages nudged up a bit, according to Freddie Mac’s weekly survey. They’re still historically low, but some observers feel they could be heading up.

 

DID YOU KNOW?…The Combined Loan To Value (CLTV) Ratio is calculated by dividing the total value of combined mortgages by the value of the property. Lenders look at the CLTV Ratio to determine if they can extend a second mortgage on a home.

>> This Week’s Forecast

ECONOMY SLOWING, BUT SO IS INFLATION…This week we get a good look at the economy. June Retail Sales are forecast down from May, flat if you take out auto sales. But Industrial Production and factory Capacity Utilization should both inch up, while University of Michigan Consumer Sentiment is expected slightly off.

 

Although the economic recovery is in slow motion, at least inflation isn’t growing much either. This week’s readings on wholesale (PPI) and retail (CPI) prices should both show slight declines for June. Midweek we’ll get the Fed’s feelings on it all, as the FOMC Minutes from their June 22 meeting are released.

>> 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 July 11 – July 15

 

 Date Time (ET) Release For Consensus Prior Impact
Tu

Jul 12

 08:30 Trade Balance May -$44.0B -$43.7B Moderate
W

Jul 13

 10:30 Crude Inventories 7/9 NA -0.889M Moderate
W

Jul 13

 14:00 FOMC Minutes 6/22 NA NA HIGH
Th

Jul 14

 08:30 Initial Unemployment Claims 7/9 419K 418K Moderate
Th

Jul 14

 08:30 Continuing Unemployment Claims 7/2 3.700M 3.681M Moderate
Th

Jul 14

 11:00 Retail Sales Jun -0.2% -0.2% HIGH
Th

Jul 14

 08:30 Retail Sales ex-auto Jun 0.0% 0.3% HIGH
Th

Jul 14

 08:30 Producer Price Index (PPI) Jun -0.3% 0.2% Moderate
Th

Jul 14

 08:30 Core PPI Jun 0.2% 0.2% Moderate
Th

Jul 14

 08:30 Business Inventories May 0.9% 0.8% Moderate
F

Jul 15

 08:30 Consumer Price Index (CPI) Jun -0.1% 0.2% HIGH
F

Jul 15

 08:30 Core CPI Jun 0.2% 0.3% HIGH
F

Jul 15

 08:30 Empire State Manufacturing Index Jul 0.8 -7.8 Moderate
F

Jul 15

 09:15 Industrial Production Jun 0.2% 0.1% Moderate
F

Jul 15

 09:15 Capacity Utilization Jun 76.8% 76.7% Moderate
F

Jul 15

 09:15 Univ. of Michigan Consumer Sentiment Jul 71.3 71.5 Moderate

 

>> Federal Reserve Watch   

Forecasting Federal Reserve policy changes in coming months…Expert opinion still says the Funds Rate will stay at its super low level for a few more Fed meetings at least. 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
Aug 9 0%–0.25%
Sep 20 0%–0.25%
Nov 2 0%–0.25%

 

Probability of change from current policy:

 

After FOMC meeting on: Consensus  
Aug 9      <1%  
Sep 20      <1%  
Nov 2      <1%