>> Austin Mortgage Market Update

INFO THAT HITS US WHERE WE LIVE Well, it had to happen. After a four-month winning streak, Existing Home Sales dropped in August by 2.7% to an annual sales pace of 5.10 million. This offsets the big sales increase we had in July but the overall trend is still up by 3.4% over a year ago and the supply of existing homes is now down to 8.5 months.

Good news came from the Federal Housing Finance Agency, which monitors prices of homes financed with conforming mortgages. They reported prices UP 0.3% in July, their third straight monthly rise. The week ended with single-family New Home Sales for August UP 0.7%. This was slightly less than expected, but 30% above their January low. Best of all, the supply of unsold new homes, down five months in a row, is now at just 7.3 months!

Mortgage applications for purchase loans were up 5.6% from the week before. Applications for government-backed purchase loans were at their highest level ever. It seems many first-time homebuyers are making sure they get that $8,000 tax credit before it expires on November 30! All this was happening as the average interest rate for prime borrowers went below 5% on 30-year fixed-rate mortgages for the first time since May. Average points inched up to 1.12 (including the origination fee) for 80% loan-to-value ratio loans.

>> Review of Last Week

TAKING A BREATHER… After a nice run up in prior weeks, the stock markets were down three days in a row, ending down for the week overall. But we have to point out that for the year, the Dow is still UP 10.1%, the S&P 500 is UP 15.6% and the tech-heavy Nasdaq is UP a whopping 32.6%! Pretty bullish performance. Problems worrying investors included the slip in Existing Home Sales covered above and Durable Goods Orders down 2.4% for August. That’s actually less problematic than it appears, since the decline came mostly from a 30% drop in volatile aircraft orders –– in July, aircraft were up 25%.

The Fed did not raise the rate at their meeting (no surprise) and came out with an FOMC statement that observed “economic activity has picked up” and “activity in the housing sector has increased.” These indications of economic recovery were followed with the announcement the Fed would continue through the end of March 2010 their purchases of mortgage-backed securities, which help keep mortgage rates low.

Initial claims for unemployment fell yet again last week, this time by 21,000, to 530,000. The four-week average of continuing claims dropped as well. Meanwhile, the Richmond Fed Index, which gauges manufacturing in the mid-Atlantic region, stayed at +14 in September, the fifth straight month it’s been positive. The week ended with the boost in New Home Sales mentioned above, plus University of Michigan Consumer Sentiment at 73.5 for September, its highest reading since January a year ago!

For the week, the Dow ended down 1.6%, to 9665.19; the S&P 500 was off 2.2%, to 1044.38; while the Nasdaq fell 2.0%, to 2090.92.

As usually happens when stock prices sink, bonds soar. The FNMA 30-year 4.5% bond we watch finished up strongly from the previous week’s $100.44 close, finishing at $101.12.It was no surprise that mortgage rates moved down a bit more, hitting levels they haven’t seen since last May, as noted above.

>> This Week’s Forecast

CONFIDENCE, SPENDING, JOBS… The week begins with Consumer Confidence and ends with the September Jobs Report. Along the way, on the day Q3 ends, we get the final number on Q2 GDP plus the Chicago PMI take on manufacturing in the Midwest.Thursday, we’ll be looking at Pending Home Sales, while the Fed will be focusing on the personal spending PCE number to keep an eye on inflation.

>> 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 September 28 – October 2

Date

Time (ET)

Release

For

Consensus

Prior

Impact

Tu

Sep 29

09:00

Consumer Confidence

Sep

57.0

54.1

Moderate

W

Sep 30

08:30

GDP–Final

Q2

–1.2%

–1.0%

Moderate

W

Sep 30

09:45

Chicago PMI Index

Sep

52.0

50.0

HIGH

W

Sep 30

10:30

Crude Inventories

9/25

NA

2.85M

Moderate

Th

Oct 1

08:30

Initial Jobless Claims

9/26

535K

530K

Moderate

Th

Oct 1

08:30

Personal Income

Aug

0.1%

0.0%

Moderate

Th

Oct 1

08:30

Personal Consumption Expenditures (PCE)

Aug

1.1%

0.2%

HIGH

Th

Oct 1

10:00

ISM Index

Sep

54.0

52.9

Moderate

Th

Oct 1

10:00

Pending Home Sales

Aug

1.0%

3.2%

Moderate

F

Oct 2

08:30

Average Workweek

Sep

33.1

33.1

HIGH

F

Oct 2

08:30

Hourly Earnings

Sep

0.2%

0.3%

HIGH

F

Oct 2

08:30

Nonfarm Payrolls

Sep

–180K

–216K

HIGH

F

Oct 2

08:30

Unemployment Rate

Sep

9.8%

9.7%

HIGH

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months. The FOMC statement coming out of last week’s meeting confirmed the Fed intends to keep the funds rate down for an extended period. That could change, of course, as the recovery builds or inflation picks up. 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

2%

Dec 15

4%

Jan 27

12%

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