For the week of July 19, 2010 – Vol. 8, Issue 29

>> Austin Mortgage Market Update

INFO THAT HITS US WHERE WE LIVE Some analysts feel the homebuyer tax credits artificially boosted the housing market by pushing forward home sales that would have happened later. Others feel most buyers would have bought anyway. In any case, there’s now concern about a coming drop in sales. Well, June sales figures should still benefit from activity spurred on by the tax credits. And tax credit sales should even help monthly reports through September, now that buyers in contract on April 30 have been given until September 30 to close.

Nonetheless, we ought to keep an eye on monthly Pending Home Sales, which track signed contracts that turn into sales a few months out. Even though we may have a sales dip after the tax credit, the fact remains that near historic low mortgage interest rates are getting people back into the market. These rates, combined with today’s prices, have made homes more affordable than they’ve been in years, letting many buyers move up to better neighborhoods with more choices.

But buyers shouldn’t wait. The National Association of Realtors chief economist sees the median home price rising nationally 2% to 3% this year. The NAR’s CEO feels sales will pick up in the fall and that the down-cycle has run its course. The chief economist at Moody’s also believes the housing crash is nearly over. And we all know Austin mortgage rates won’t stay at their current levels indefinitely. In other words, this could be one of the best times to buy a home in decades.

>> Review of Last Week

UP AND DOWN… The stock market indexes were up nicely through Wednesday, continuing last week’s rally, then slipped slightly on Thursday before plunging more than 261 points Friday. For the week, the declines hovered around 1%, not too bad considering the volatile atmosphere of the proceedings on Wall Street.

The problems Friday centered on a drop in the University of Michigan Consumer Sentiment number and soft top-line Q2 revenues from Bank of America, Citigroup, and GE, even though bottom-line earnings from these behemoths beat expectations. The big disappointment came from Google, which missed earnings estimates even though revenue grew a faster than expected 25% for the quarter. But Google was the ONLY major company reporting last week that did not BEAT earnings forecasts.

We also heard complaints about some of the economic data. The trade deficit increased in May, but exports are UP 21.0% in the past year. Yes, May retail sales were off half a percent, but the annual growth rate for retail in the last nine months remains a respectable 6.7%. The Producer Price Index (PPI) and Consumer Price Index (CPI) showed wholesale and consumer inflation down a tad in June. This got analysts fretting about deflation, but both PPI and CPI are actually up from a year ago.

Nonetheless, negative feelings prevailed, so for the week, the Dow ended down 1.0%, to 10097.90; the S&P 500 was down 1.2%, to 1064.88; and the Nasdaq was down 0.8%, to 2179.05.

As stocks slid, the bond market attracted a slew of investors on the proverbial flight to safety. Prices headed north, as the FNMA 30-year 4.0% bond we follow cruised UP 41 basis points for the week, ending at $101.91. Freddie Mac’s weekly survey reported that national average rates for conforming mortgages remain at record low levels.

>> This Week’s Forecast

BACK TO HOUSING… Last week’s tsunami of economic data lacked any info on the housing market. This week’s reports make up for that, beginning with June Housing Starts and Building Permits on Tuesday. Starts are expected to be down slightly, with permits virtually flat. Thursday we’ll see June Existing Home Sales, which may be down a bit. We’ll also look at the Leading Economic Indicators (LEI) Index, which could be a tad off for the month.

Q2 corporate earnings reports continue, including:, AT&T, Caterpillar, Coca-Cola, Goldman Sachs, IBM, PepsiCo, and Texas Instruments.

>> 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 19 – July 23

Date Time (ET) Release For Consensus Prior Impact

Jul 20

08:30 Housing Starts Jun 570K 593K Moderate

Jul 20

08:30 Building Permits Jun 575K 574K Moderate

Jul 21

10:30 Crude Inventories 7/17 NA –5.06M Moderate

Jul 22

08:30 Initial Unemployment Claims 7/17 445K 429K Moderate

Jul 22

08:30 Continuing Unemployment Claims 7/10 4.600M 4.681M Moderate

Jul 22

10:00 Existing Home Sales Jun 5.04M 5.66M Moderate

Jul 22

10:00 Leading Economic Indicators (LEI) Index Jun –0.4% 0.4% Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months According to just about every economist out there, the Fed will probably keep rates at super-low levels for the rest of the year, as inflation is expected to remain benign during that time. 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 10 0%–0.25%
Sep 21 0%–0.25%
Nov 3 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Aug 10 <1%
Sep 21 <1%
Nov 3 2%