For the week of June 6, 2011 – Vol. 9, Issue 23

>> Austin Mortgage Market Update

QUOTE OF THE WEEK…“Obstacles don’t matter very much…if you want to do a job bad enough, you’ll find a way to get it done.”–Jack Youngblood, Pro Football Hall of Famer

INFO THAT HITS US WHERE WE LIVE… Last Tuesday another housing market obstacle appeared in the form of Standard & Poor’s Case-Shiller Home Price Index for March. Prices for 20 major metro areas dropped 0.8% for the month and were down 3.6% from a year ago. These numbers had some folks claiming the double dip in housing prices had arrived. But Case-Shiller’s longer term data reveals that in their 20 measured metros, home prices are still UP 38.2% since January 2000. This shows that in real estate, you have to look at the long term picture, just like you do with your 401K. You can see a chart of the info here:


National average home prices are also misleading. First, the national average rarely matches the price situation in a specific local housing market. Beyond that, distressed sales at substantial discounts make up a portion of that national average price. In fact, when distressed sales are excluded, home prices are off just 0.5% year-over-year in April, according to data aggregator CoreLogic. If that’s a double dip, you’d need a magnifying glass to see it. Finally, the Mortgage Bankers Association reported purchase loan demand unchanged from the prior week and up 7.6% from a year ago. But MBA researchers do expect mortgage rates to rise the last three months of this year and continue to increase gradually through 2012.

BUSINESS TIP OF THE WEEK…Be true to yourself. Don’t blindly follow someone else’s ideas about your business. But don’t fight the rules of the game in your industry — you won’t change them overnight. Just be sure to put your own unique stamp on everything else about your business.

>> Review of Last Week

DOWN ONCE AGAIN…We watch the stock market to see how professional investors view the economy going forward. Well, their response to this week’s disappointing economic data left the Dow recording its fifth straight weekly loss. The highlight was the May Employment Report, with a way weaker than expected growth of just 54,000 new jobs for the month and the unemployment rate ticking up to 9.1% thanks to an expanding workforce. We also had a lower than expected ISM Manufacturing Index. Both reports were showing increases, but at a much slower rate, which was upsetting to Wall Street.

On a more encouraging note, the ISM Services Index increased more than expected in May. This is the larger sector of the economy and contributes the overwhelming bulk of U.S. jobs. In addition, the final reading for Q1 Productivity showed it rising at a 1.8% annual rate, an upward revision from previous estimates. Economists are debating whether the May slowdown will continue or is just a monthly aberration brought on by the economic effects of the disaster in Japan and the severe weather in this country. New jobless claims were down for the week, although still above 400,000, while continuing claims dipped to 3.71 million.

For the week, the Dow ended down 2.3%, at 12,151; the S&P 500 was down 2.3%, at 1,300; and the Nasdaq was down 2.3%, at 2,733.


With the week’s disappointing economic data and continued worries about Greek debt, investors flocked to the bond market, which resulted in some solid price gains. The FNMA 4.0% bond we watch ended the week up .83, closing at $101.02. With bond prices on the rise, mortgage rates tend to fall. National average rates for fixed-rate conforming mortgages dropped for the seventh week in a row, setting new lows for the year, according to Freddie Mac’s survey.

DID YOU KNOW?…In 1902 Willis Carrier invented the first modern electric air conditioning unit for his Syracuse, NY, printing plant, because ink and paper work better in cooler temperatures. The invention was such a big success, he formed the Carrier Air Conditioning Company of America. 

>> This Week’s Forecast

FED SURVEY AND GLOBAL TRADE…After all the emotional unrest caused by last week’s economic reports, the coming five days will be refreshingly quiet. The Fed’s Beige Book on Wednesday is a survey of the current economic and business situation in each of the Federal Reserve Districts around the country. Coming out a couple of weeks before the next FOMC meeting, it can help us see where the Fed might be headed with its Funds Rate decision on June 22.


Weekly Initial Unemployment Claims are expected to remain above their disappointing 400,000 level. The Trade Balance should inch up slightly.

>> 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 6 – June 10


Date Time (ET) Release For Consensus Prior Impact

Jun 8

10:30 Crude Inventories 6/3 NA 2878K Moderate

Jun 8

14:00 Fed’s Beige Book Jun NA NA Moderate

Jun 9

08:30 Initial Unemployment Claims 6/4 423K 422K Moderate

Jun 9

08:30 Continuing Unemployment Claims 5/28 3.688M 3.711M Moderate

Jun 9

08:30 Trade Balance Apr -$48.7B -$48.2B Moderate


>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months…If the Fed pays attention to any of last weeks negativity, they certainly won’t put any pressure on the recovery by raising the Funds Rate. That’s why economists expect the rate to remain at its super low 0%-0.25% level into next year. 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
Jun 22 0%–0.25%
Aug 9 0%–0.25%
Sep 20 0%–0.25%


Probability of change from current policy:


After FOMC meeting on: Consensus  
Jun 22 <1%  
Aug 9 <1%  
Sep 20 <1%