For the week of July 4, 2011 – Vol. 9, Issue 27

>> Austin Mortgage Market Update 

QUOTE OF THE WEEK…“Get your facts first, then you can distort them as you please.”–Mark Twain


INFO THAT HITS US WHERE WE LIVE…Last week’s housing market facts were so good, it was hard for commentators to distort them into the negative picture many like to paint. Wednesday’s Pending Home Sales for May came in 8.2% ahead of April, the biggest monthly gain since November and 13.4% higher than May a year ago! This annual hike was the first in over a year, while the monthly gain points to sales increases come June and July. All regions were up, the Midwest leading with a 17.2% annual bump!


April’s Case-Shiller home price index posted its first gain in eight months, UP 0.8% in the top 10 metros and UP 0.7% in the top 20. Data aggregator CoreLogic’s Home Price Index was UP in May for the second month in a row.


It was also nice to see consumers aren’t discouraged. In a New York Times/CBS News poll, almost 9 in 10 Americans say homeownership is an important part of the American Dream. And consumers continue to believe that the market will eventually improve and housing will regain its traditional importance.


Lastly, the Wall Street Journal reported, “there are growing indications that it is a good time to buy,” concluding that “the long-term case for home ownership is looking stronger.”


BUSINESS TIP OF THE WEEK…Take the initiative. Don’t wait for things to happen, get them started right now. Instigate, experiment, test, learn. Don’t just react to the world, take action yourself!

>> Review of Last Week

EARLY FIREWORKS…It was an explosive week for stocks, as investors just couldn’t wait for the weekend celebrations. It was one of the biggest weekly market gains in two years. Greece passed unpopular austerity measures and got its bailout. This calmed Wall Streeters worried about US bank exposure to Greek bonds. The week began with inflation still under control. Core PCE Prices were up 0.3% in May and up only 1.2% for the year. And personal income is up 4.2% in the past year.


On the jobs front, key to housing, the Bureau of Labor Statistics reported that in May, the unemployment rate fell year-over-year in 74% of the metro areas measured. Investors were also buoyed by an unexpected uptick in manufacturing. The Chicago PMI bolted up to 61.1 in June, showing strength in Midwestern manufacturing. Manufacturing nationwide also grew strongly, as the ISM Manufacturing index jumped to 55.3 for the month. In both cases a drop had been forecast.


For the week, the Dow ended UP 5.4%, to 12583; the S&P 500 was UP 5.6%, to 1340; and the Nasdaq was UP 6.1%, to 2816.


With stocks surging, bonds headed lower as investor fears dissipated and the Fed ended its QE2 bond buying program. So the FNMA 4.0% bond dropped heavily, ending the week down 1.84, at $99.25. But national average rates on fixed-rate mortgages barely moved, still near yearly lows. National average rates on 5-year adjustable-rate mortgages (ARMs) also hit lows for the year.


DID YOU KNOW?…Last week’s Chicago PMI, or Purchasing Managers Index, measures the health of manufacturing in that region. It’s based on a survey of purchasing managers who share data on factors like new orders, production, employment, supplier deliveries and inventory.

>> This Week’s Forecast

WILL JOBS JUMP IN JUNE?…Happy Independence Day! There are no economic reports today and markets are closed. Everyone’s focus is on Friday’s June Employment Report. Economists do not foresee a big jump in jobs just yet, only a nudge up to around 80,000 new payrolls. This won’t be enough to drop unemployment below the existing 9.1% rate.


Wednesday features June ISM Services, forecast basically flat, but still above 50, indicating growth in the non-manufacturing sector. Service businesses provide around 85% of U.S. jobs, so expansion is good.

>> 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 4 – July 8


 Date Time (ET) Release For Consensus Prior Impact

Jul 6

10:00 ISM Services Jun 54.0 54.6 Moderate

Jul 7

08:30 Initial Unemployment Claims 7/2 425K 428K Moderate

Jul 7

08:30 Continuing Unemployment Claims 6/25 3.700M 3.702M Moderate

Jul 7

11:00 Crude Inventories 7/2 NA -4.375M Moderate

Jul 8

08:30 Average Workweek Jun 34.4 34.4 HIGH

Jul 8

08:30 Hourly Earnings Jun 0.2% 0.3% HIGH

Jul 8

08:30 Nonfarm Payrolls Jun 80K 54K HIGH

Jul 8

08:30 Unemployment Rate Jun 9.1% 9.1% HIGH


>> Federal Reserve Watch   

Forecasting Federal Reserve policy changes in coming months…With the recovery slowing, economists expect Fed Chairman Bernanke to keep the Funds Rate where it is until things get moving again. 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%