For the week of May 23, 2011 – Vol. 9, Issue 21
|>> Austin Mortgage Market Update
QUOTE OF THE WEEK…“The greatest thing in this world is not so much where we are, but in what direction we are moving.”–Oliver Wendell Holmes
INFO THAT HITS US WHERE WE LIVE…People wonder if housing is moving in the right direction, especially after April Housing Starts fell 10.6% to an annual rate of 523,000 units. But a closer look reveals the decline was due mostly to multi-family units, which are volatile month to month and actually up 6.6% from a year ago. Also, the biggest drop was in the South, which had been hit with severe tornados. Outside that region, starts were UP 5.5%! Homes under construction are at their lowest level since 1970, so some areas may rebound from shortages in the next few months. Following a March rise, Existing Home Sales were down just 0.8% in April and the seasonally adjusted annual rate is still above 5 million. Total inventory edged up to 9.2 months.
There’s been a lot of talk about double dipping home prices, but this is simply not true for the majority of sales. Analytics firm CoreLogic reported that for March 2011, overall single-family home prices were off 7.5% versus the previous year. But when they took out distressed sales, typically made at significant discounts, the annual price decline in conventional home sales, which constitute the majority, was less than 1%! Furthermore, CoreLogic found that price declines for conventional home sales have slowed considerably in the last few months.
BUSINESS TIP OF THE WEEK…Be flexible. Successful people know change will come whether they want it or not. So factor change into your plans and your outlook. You can reinvent yourself many times and still stay close to your core competency. All it takes is some imagination — and confidence.
>> Review of Last Week
SLIPPERY…The Dow and S&P 500 stock indexes both slid for the third week in a row, this time joined by the Nasdaq, which was flat last time around. Wall Street investors continue to worry over European government finances, with possible Greek debt restructuring and Spanish elections causing concern. On the home front, some folks fretted about a U.S. economic slowdown, as corporate earnings season, after a strong beginning, is ending with big players like HP, Home Depot and Wal-Mart failing to impress. But there still were corporate winners, including Dell, John Deere, Abercrombie & Fitch and Target and, for the quarter, many more companies have done well than have disappointed.
It was also good to see that initial unemployment claims for the week came in better than anticipated, dropping to 409,000, with continuing claims falling as well. Economists are now talking about getting back to the 380,000 level shortly. Industrial Production was reported flat for last month, although still up for the year, and New York’s Empire Index and the Philadelphia Fed Index both showed the manufacturing sector growing in those regions, though at a slower pace.
For the week, the Dow ended down 0.7%, at 12,512; the S&P 500 was down 0.3%, to 1,333; and the Nasdaq was down 0.9%, at 2,803.
Bonds usually go in the opposite direction from stocks, but there were only modest gains in bond prices for the week. The FNMA 4.0% bond we watch ended Friday up .02, closing at $100.06. As mortgage bond prices go up, mortgage rates go down. So no surprise that national average rates for conforming mortgages slid for the fifth week in a row according to Freddie Mac’s survey. But observers are concerned rates will not stay at these levels.
DID YOU KNOW?…The International Monetary Fund (IMF) is a United Nations agency that provides loans and financial advice to member nations. Sadly, it was in the news last week after its Managing Director was arrested in New York on sexual assault charges. The IMF is dominated by wealthy nations, including France, home to that Managing Director who has now resigned.
>> This Week’s Forecast
HOME SALES, Q1 GDP AGAIN, INFLATION…Tuesday, expect to see New Home Sales holding steady for April, while Friday, Pending Homes Sales for the same month should be down a tad, hinting at existing home closings a few months out. Thursday, there’s a second look at Q1 GDP, forecast to show the economy growing a smidge better than the initial estimate. Friday’s inflation reading will focus on the Core PCE Prices the Fed watches, predicted to be up a bit but still well within limits. Of course, this reading excludes food and energy prices, regarded as volatile and currently on the rise.
>> 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 May 23 – May 27
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months…The minutes of the Fed’s April meeting gave no indication the central bankers were ready to start tightening policy any time soon. So economists expect the 0%-0.25% rate to be with us 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%
Probability of change from current policy: