Austin Mortgage Market – For the week of December 21, 2009

For the week of December 21, 2009 – Vol. 7, Issue 51

>> Market Update

INFO THAT HITS US WHERE WE LIVE We saw strong evidence last week that homebuilders are well on their way to recovery. Housing starts for November were UP 8.9%, to an annual rate of 574,000 units. Single-family starts were 35.0% higher than their January and February lows. The very volatile multi-units starts were UP 67.3% from the previous month’s cyclical low. And get this — starts were UP in every major region across the country!

Building permits are the future of homebuilding and guess what. They were UP 6.0% for November, to an annual rate of 584,000 units. This was above expectations and the fastest rise in a year. Single-family permits were UP 5.3%, registering their best pace since September 2008, when the economic mess began. Overall, homebuilding is UP in Q3 and many experts anticipate another gain in Q4 and even bigger increases in 2010-2011.

Mortgage rates continue at attractive levels, though they’re creeping up. Fannie Mae’s survey for the week ending last Thursday showed 30-year fixed-rate mortgages averaging 4.94% with an average 0.7 point (including the origination fee) for 80% loan-to-value (LTV) ratio loans. Last week the Fed confirmed they would end their purchase program for Mortgage Backed Securities on March 31, 2010. This is expected to cause mortgage rates to keep inching up. One more reason for buyers to act now!

>> Review of Last Week

NO BULLS, NO BEARS… For yet another week the markets trended neither up nor down. Major indexes were mixed, with the Dow and S&P 500 down a bit but the tech-heavy Nasdaq showing strength bolstered by good earnings from Research In Motion (Blackberry to you and me) and software giant Oracle. We had signs of an improving economy AND encouraging words from the Fed, but investors were either selling to take profits from the market’s strong 2009 performance, or buying into the values available, but without much gusto.

The Producer Price Index (PPI) for November shot up an unexpected 1.8%, but this inflationary signal for business wasn’t passed on to consumers. November’s Consumer Price Index (CPI) was up a milder and much more acceptable 0.4%, so inflation watchers remained calm. Chief inflation watcher, of course, is the Fed and they’re clearly not worried about rising prices. At last week’s meeting, they kept the Fed Funds Rate at 0% to 0.25% and did not change the part of their policy statement confirming they would keep rates “exceptionally low” for an “extended period.”

The Fed’s statement also saw a strengthening economy, with consumer spending “expanding at a moderate rate” and “modest” income growth. They feel “the deterioration in the labor market is abating” and financial markets are now “supportive of economic growth.” Reflecting this positive view, Industrial Production showed nice gains for November and the Empire State index signaled manufacturing expansion in the New York region for the fifth month in a row. 

For the week, the Dow was off 1.4%, to 10328.89; the S&P 500 was down just 0.4%, to 1102.47; while the Nasdaq was UP 1.0%, to 2211.69.

Bonds had an up and down week with downward price pressure driving yields up. Mortgage rates followed suit, drifting a bit higher, as reported above. But concerns about Greece’s downgraded debt rating drove a flight to safety sending bond prices back up. The FNMA 30-year 4.5% bond we watch ended the week right where it began, at $101.22. Even though mortgage rates inched up some, they’re solidly below where they were a year ago and still at historically low levels.

>> This Week’s Forecast

SOME HOLIDAY GIFTS?… Christmas arrives on Friday, but the four-day week could have a few presents of its own. Tuesday, we’ll see the latest estimate on Q3 GDP, which should stay strong. We’ll also get November Existing Home Sales, followed the next day by New Home Sales. Wednesday has the PCE report, another key reading on inflation. And the weekly jobs numbers bear watching for any gifts they may bear. Stock and bond markets will be closed Friday for Christmas. Thursday, stocks will close at 1pm ET and bonds at 2pm ET.

May you and yours have a Happy Holiday filled with joy and peace!

>> 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 December 21 – December 25

Date Time (ET) Release For Consensus Prior Impact
Tu

Dec 22

08:30 GDP – Third Estimate Q3 2.8% 2.8% Moderate
Tu

Dec 22

08:30 GDP Prices – Third Estimate Q3 0.5% 0.5% Moderate
Tu

Dec 22

10:00 Existing Home Sales Nov 6.25M 6.10M Moderate
W

Dec 23

08:30 Personal Income Nov 0.5% 0.2% Moderate
W

Dec 23

08:30 Personal Consumption Expenditures (PCE) Nov 1.6% 0.2% HIGH
W

Dec 23

08:30 Core PCE Nov 0.1% 0.2% HIGH
W

Dec 23

09:55 Univ. of Michigan Consumer Sentiment-Rev. Dec 73.7 73.4 Moderate
W

Dec 23

10:00 New Home Sales Nov 439K 430K Moderate
W

Dec 23

10:30 Crude Inventories 12/18 NA –3.69M Moderate
Th

Dec 24

08:30 Initial Unemployment Claims 12/19 470K 480K Moderate
Th

Dec 24

08:30 Continuing Unemployment Claims 12/12 5.175M 5.186M Moderate
Th

Dec 24

08:30 Durable Goods Orders Nov 0.5% –0.6% Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months. The Fed at last week’s meeting reiterated their “rates should stay low for an extended period” mantra. However, they did comment that the economy has picked up and the jobs situation seems to be easing. A stronger economy with more jobs will trigger a rate hike, so sentiment is building for one next Spring. 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
Jan 27 0%–0.25%
Mar 16 0%–0.25%
Apr 28 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Jan 27 1%
Mar 16 8%
Apr 28 15%
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About Max Leaman Austin Mortgage

GREAT RATES, LOW FEES, CLOSE ON TIME™ ---- 2012 Ranked #1 Austin Residential Mortgage Lender (Austin Business Journal) 2010, 2011 & 2012 Five Star Professional (Texas Monthly) 2009, 2010, 2011, 2012, 2013 PrimeLending Chairman's Circle Award 2009, 2010, 2011, 2012 Scotsman Guide Top Originator (Top 200 Mortgage Professionals in U.S.A.) Better Business Bureau "A+ Rating" National Lender Rankings (Scotsman Guide): Top Purchase Volume (No. 10) Most Loans Closed (No. 32) Top Dollar Volume (No. 88)

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