>> Austin Mortgage Market Update

For the week of October 19, 2009 – Vol. 7, Issue 42

INFO THAT HITS US WHERE WE LIVE For the third week in a row, rates on 30-year fixed-rate mortgages remained below 5% in Freddie Mac’s Primary Mortgage Market Survey. The average for conforming mortgages was 4.92% with an average of 0.7 point (including the origination fee) for 80% loan-to-value ratio loans to borrowers with good credit.

The Mortgage Bankers Association reported applications down 1.8% for the week, although re-financings were up, as more people took advantage of historically low mortgage rates. The MBA also projected double-digit growth for home sales next year. They see 2010 existing home sales up 11.2% to 5.57 million and new home sales up a healthy 21% from 2009 levels. Another encouraging stat came from the National Association of Realtors which reported 3.6 million existing homes for sale at the end of August, nicely down from 4.3 million 12 months ago.

First time buyers may still be able to get the $8,000 tax credit expiring at the end of November. That’s six weeks away, which is not a lot of time, but not impossible. Fence-sitters should get pre-qualified now.

>> Review of Last Week

FLIRTING WITH 10,000… Investors focused on corporate earnings saw enough encouraging signs to push the Dow past 10,000 on Wednesday. It was last at that magical mark on October 7 a year ago. The market closed above 10,000 again on Thursday, but Friday was a different story. GE and IBM reported quarterly results that were less than expected and University of Michigan Consumer Sentiment fell 3.9 points, after a 7.8 point rise in September, so the week ended below 10,000, but still with an overall gain.

But don’t fret over consumers — they’re clearly showing up at the stores. Retail sales for September fell just 1.5%, way less than expected after the end of the Cash for Clunkers program. In fact, “core” retail sales (take out autos, building materials and gas) were UP 0.5% and are UP three of the last four months. Ignore the pundits — consumers ARE participating in this recovery. Other good indicators included the Empire State Manufacturing Index rising to its highest level in over five years and initial unemployment claims falling to 514,000, their lowest level since the start of the year.

But the best news for investors was on the earnings front, with JPMorgan Chase, Goldman Sachs and Citigroup all beating estimates. Tech darling Google blew everyone away with earnings of almost $6 a share and an optimistic economic outlook. The week ended with Treasury Secretary Tim Geithner telling CNBC: “… you’re going to see the economy growing at a significant rate…the rest of this year. [And] Positive growth in 2010 at a level that will begin to gradually bring down the unemployment rate.”

For the week, the Dow ended UP 1.3%, to 9995.91; the S&P 500 was UP 1.5%, to 1087.68; while the Nasdaq rose 0.8%, to 2156.60.

The bond market saw prices under pressure in the shortened week. This included the FNMA 30-year 4.5% bond we watch, which dropped a tad from the previous week’s $100.91 close, ending at $100.72. But, as reported above, mortgage rates stayed low, keeping us in “the golden age of mortgage rates”, as one observer described it.

>> This Week’s Forecast

HOME SWEET HOMES… This week is full of news on the subject we love most. Tuesday we get Housing Starts and Building Permits for September, Friday delivers Existing Home Sales. For a gauge of the broader economy, the PPI looks at producer prices, while the LEI consolidates a group of indicators. We will all keep watching Initial and Continuing Unemployment numbers as we wait for Secretary Geithner’s prediction to come true.

Corporate earnings will stay big in the picture as 12 companies who are part of the Dow Jones Industrial Average share Q3 results.

>> 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 October 19 – October 23

Date Time (ET) Release For Consensus Prior Impact

Oct 20

08:30 Housing Starts Sep 610K 598K Moderate

Oct 20

08:30 Building Permits Sep 590K 579K Moderate

Oct 20

08:30 Producer Price Index (PPI) Sep 0.0% 1.7% Moderate

Oct 20

08:30 Core PPI Sep 0.1% 0.2% Moderate

Oct 21

10:30 Crude Inventories 10/16 NA 0.33M Moderate

Oct 22

08:30 Initial Unemployment Claims 10/17 517K 514K Moderate

Oct 22

08:30 Continuing Unemployment Claims 10/10 5.990M 5.992M Moderate

Oct 22

10:00 Leading Economic Indicators (LEI) Sep 0.9% 0.6% Moderate

Oct 23

10:00 Existing Home Sales Sep 5.35M 5.10M Moderate


Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months. Last week the Consumer Price Index (CPI) inched up 0.2% for September. The Fed watches this number like a hawk for signs of inflation. Rates should stay down until the recovery builds, but after that, the Fed could move quickly. 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
Nov 4 0%–0.25%
Dec 15 0%–0.25%
Jan 27 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Nov 4 1%
Dec 15 4%
Jan 27 13%

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