For the week of November 9, 2009 – Vol. 7, Issue 45

>> Austin Mortgage Market Update

INFO THAT HITS US WHERE WE LIVE Big news for the housing market came Friday when the President signed a bill extending and broadening tax credits for homebuyers. Major points were first reported in an Inside Lending Bulletin last Thursday. The tax credits apply to contracts signed by April 30, 2010, that close by June 30. Income limits for eligibility have been increased to $125,000 per year for individuals and up to $225,000 per year for couples. Credits up to $8,000 continue for first-time buyers but there is now a $6,500 tax credit for buyers who’ve owned their current home at least five of the last eight years. However, homes selling for more than $800,000 are not eligible.

The week began with September Pending Home Sales coming in UP for the eighth month in a row. The National Association of Realtors index was UP 6.1% for the month, and UP 21.2% over September a year ago! The index hit 110.1, with 100 equaling the average level of sales contracts in 2001, the first year measured by the index.

And, yes, the Mortgage Bankers Association once again reported the average contract interest rate for 30-year fixed-rate mortgages dropped. This time it hit 4.97% with points sinking to 1.01 (including the origination fee) for 80% loan-to-value (LTV) ratio loans.

>> Review of Last Week

HELLO, 10,000… The Dow Jones Industrial average had busted through 10,000 before, but was finally able to stay above that magic number when the market closed for the week. The S&P 500, which many consider an even better indicator of investor sentiment, was up every day. The big jump came Thursday with solid earnings from tech giant Cisco and a 9.5% jump in Productivity. Friday saw what some considered a gloomy October Employment Report, but investors wouldn’t let it push the Dow under 10,000.

Let’s be clear. The job market is lagging behind the turnaround analysts are seeing in the overall economy. 10.2% unemployment is the highest since 1983, though still below that era’s 10.8% rate. And because of the economic growth that began in the summer, some economists now feel unemployment is at its peak or very close. There were encouraging signs in Friday’s numbers. There were fewer jobs lost than first reported for August and September. And the three-month average of job losses has declined in each of the last eight months.

Getting back to more obviously positive economic news, the 9.5% productivity gain was its largest boost since 2003. ISM Manufacturing was much better than expected, now solidly in above-50 expansion territory at 55.7. ISM Services has also begun to expand at 50.6, while Construction Spending bumped up 0.8% and Pending Home Sales saw the great shot up we covered above. The Fed’s policy statement after last week’s meeting recognized for the first time that household spending is “expanding” now, rather than “stabilizing” as they characterized it before.

For the week, the Dow finished UP 3.2%, to 10023.42; the S&P 500 was also UP 3.2%, to 1069.30; while the Nasdaq went UP 3.3%, to 2112.44.

While stocks did well, bonds held their own, supported by buyers who chose get gloomy over an employment report that stock investors certainly weren’t fretting about. The FNMA 30-year 4.5% bond we watch ended slightly ahead of the previous week’s close, finishing at $101.28. Mortgage rates moved down again slightly, firmly staying in historically low territory.

>> This Week’s Forecast

TAKE A BREAK… After all the hoopla of last week’s Fed meeting and Employment Report, this week is about as quiet as it gets on the economic front. The markets take a break too, closing Wednesday for Veteran’s Day. Thursday we’ll continue to look at the weekly unemployment reports, as any improvement in jobs bodes well for housing. The Trade Balance is important, since it reflects our situation in the world market our economy is so closely tied to. Finally, we have another read on the consumer’s mindset on Friday.

>> 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 November 9 – November 13

Date Time (ET) Release For Consensus Prior Impact

Nov 12

08:30 Initial Unemployment Claims 11/7 NA 512K Moderate

Nov 12

08:30 Continuing Unemployment Claims 10/31 NA 5.75M Moderate

Nov 12

11:00 Crude Inventories 11/6 NA –3.94M Moderate

Nov 13

08:30 Trade Balance Sep –$31.9B –$30.7B Moderate

Nov 13

08:30 Univ of Michigan Consumer Sentiment–Prelim. Nov 71.8 70.6 Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months. The Fed made clear in their policy statement after last week’s meeting, that they intend to keep rates low for a long time. Inflation could change that, of course. 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
Dec 15 0%–0.25%
Jan 27 0%–0.25%
Mar 16 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Dec 15 1%
Jan 27 3%
Mar 16 14%

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