Austin Mortgage Market Update – For the week of March 8, 2010

For the week of March 8, 2010 – Vol. 8, Issue 10

INFO THAT HITS US WHERE WE LIVE Last week’s one housing report gave us the National Association of Realtors Pending Home Sales index, down 7.6% for January. But year over year, the NAR index is up 12.3%. Also, it’s now at 90.4 and a score of 100 equals the average level of contract activity for 2001, the base year, when activity was at a record high. So pending sales are still in pretty good territory.

Meanwhile, a quarterly report from a builders group and a major bank revealed that home prices are at near record levels of affordability. In the last three months of 2009, a family making the median income of $64,000 a year could afford to buy 70.8% of all homes sold during that time! According to this report, a home is affordable if a family making the metro area’s median income would have to spend no more than 28% of their take-home pay for housing. Of course, there are variations in affordability around the US, but this is a great overall trend.

Buyers, however, shouldn’t expect great affordability to last forever. According to a Freddie Mac index, in the last quarter of 2009 four out of nine regions showed home price gains! And the NAR’s monthly market forecast, out last Thursday, projected the median price of existing homes UP 2.8% for 2010 with the new home median price UP 2.0%. In addition, no one knows what will happen to mortgage rates once the Fed stops buying mortgage bonds at the end of this month. Smart buyers shouldn’t drag their feet, especially those wanting the tax credit, which requires a signed contract by April 30.

>> Review of Last Week

IN LIKE A LION… March came in and the markets roared, as the Dow clawed its way up to a 2.3% gain for the week that brought it to its highest level for the year. Investors were basically pleased with a slew of encouraging economic data that came in ahead of expectations, while credit market conditions continue to improve.

That’s not to say there weren’t a few disappointments, starting with the dip in pending home sales covered above. ISM Manufacturing for February also came in below estimates, at 56.5, but, hey, that’s still comfortably above the 50 level that signals expansion. On the other hand, ISM Services bested expectations, reporting a 53.0, its best reading since 2007.

Friday we had an employment report some experts feel shows an economy that’s poised to start adding jobs. Nonfarm payrolls were still down by 36,000 in February, but this was way better than expected. Even better than that, the unemployment rate held at 9.7%, avoiding an expected increase. And some observers feel the underlying data is pointing to job creation. We’ll see.

For the week, the Dow headed UP 2.3% to 10566.20; the S&P 500 hiked UP 3.1%%, to 1138.69; while the Nasdaq soared UP 3.9%, to 2326.35.

Bond prices came under a lot of pressure from the better than anticipated jobs report, a ton of supply coming next week and soaring stocks distracting investors from seeking a safe haven in bonds. But the FNMA 30-year 4.5% bond we watch held on, to end the week UP 10 basis points, closing at $101.19. Mortgage rates dipped a bit nationally, according to Freddie Mac’s weekly survey, and remain at very low levels.

>> This Week’s Forecast

HELLO AGAIN, CONSUMERS… It’s a fairly quiet week for economic news with the sole exception being the February Retail Sales reports on Friday. It’s been a business-led recovery so far, but the consumer is still a big part of the economy, so every month we all take a good hard look at Retail Sales. Friday we’ll also have Michigan consumer sentiment. And weekly unemployment numbers will continue to be an important focus.

>> 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 March 8 – March 12

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months The economy appears to be recovering, inflation remains in check and the Fed has said it expects to keep the rate down for an extended period of time. Economists do not expect a rate hike in the first half of the 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%

Probability of change from current policy: