Austin Mortgage Market Update – For the week of June 14, 2010

For the week of June 14, 2010 – Vol. 8, Issue 24

INFO THAT HITS US WHERE WE LIVE The Mortgage Bankers Association reported demand for purchase mortgages was down 5.7% last week from the week before. Analysts felt the decline showed that the federal tax credits ending in April took away from future sales.

However, as reported in the April 19 INSIDE LENDING, those tax credits are still available to some service personnel. For members of the military, Foreign Service, and intelligence community who have been on official extended duty, the homebuyer tax credit was extended one full year — to April 30, 2011, for a signed contract and June 30, 2011, for the closing. If you have clients in these services, please have them contact us right away to see if they meet the specific provisions to qualify for this valuable benefit.

There are lots of other good reasons for housing to continue its recovery. Mortgage rates are at record low levels and economists report that relative to rents, national average home prices are about 10% below fair value and are at their lowest level relative to replacement cost in over thirty years.

>> Review of Last Week

BULLS PREVAIL… It was another super volatile week on Wall Street with the Dow down 115 points one day, up 123 points the next, then soaring 273 points a couple of days later. Ultimately, the bulls kept stock prices heading north and all three major indexes ended UP for the week. We finally got good economic news from across the seas, as Chinese exports grew 48.5% year over year, Australia’s unemployment rate dropped to 5.2%, and European debt worries subsided for the time being.

Wednesday the Fed reported in its regional economic review that the economy had strengthened in all twelve of its Districts for April and May. Testifying before Congress, Chairman Ben Bernanke said, “The private sector is beginning to take over this recovery.” He added, “The economy… appears to be on track to continue to expand through this year and next.” These are encouraging comments from this typically cautious man.

The jobs situation is of course still a concern, although new unemployment claims fell again last week and continuing claims dropped by 255,000 to 4.462 million, the lowest level so far in the recovery. Investors were concerned to see May retail sales down 1.2%. But the report also showed core retail sales, excluding autos, building materials, and gas, were up 0.1%. This bit of encouragement was bolstered by the University of Michigan Consumer Confidence Survey, up strongly from last month to a 75.5 reading.

For the week, the Dow ended UP 2.8%, to 10211.07; the S&P 500 was UP 2.5%, to 1091.60; and the Nasdaq was UP 1.1%, to 2243.60.

Stocks were positive for the week, but bond prices also held up thanks to the success of the week’s treasury auctions and Friday’s mixed consumer data driving flight-to-safety buyers to bonds. With the rise in Mortgage Bond prices, we are now following the FNMA 30-year 4.0% bond, which closed UP 12 basis points on Friday, ending at $99.72. Freddie Mac’s weekly survey showed national average mortgage rates holding at their historically low levels.

>> This Week’s Forecast

HOMES, INFLATION–UP OR DOWN?… We’re back to an action-packed week of economic data. Highlights include May Housing Starts and Building Permits on Wednesday, which should show us how builders feel now that the homebuyer tax credit has expired for all but some qualified service personnel mentioned above. Then wholesale inflation comes in with the PPI and Core PPI, followed by Thursday’s CPI and Core CPI, those all-important consumer inflation readings. Inflation is expected to remain at the benign levels that are holding down the Fed funds rate. The week is bookended with manufacturing reports, Monday for the New York region and Friday for the Philadelphia area.

>> 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 June 14 – June 18

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months Last week Chairman Ben Bernanke commented the Fed would probably raise rates before “unemployment is where we’d like it to be,” but most economists still feel we’ll be in a low-rate environment a while longer. 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%

Probability of change from current policy: