Austin Mortgage Market Update – For the week of February 22, 2010

For the week of February 22, 2010 – Vol. 8, Issue 8

>> Austin Mortgage Market Update

INFO THAT HITS US WHERE WE LIVE Builders are jumping on the recovery bandwagon, as January Housing Starts beat consensus estimates, heading UP 2.8% to an annual rate of 591,000 units. Single-family starts are now 35.6% up from their low a year ago. Total new building permits dropped a tad in January, but single-family permits were up 0.4% for the month and UP 48.2% from a year ago.

The trend indicates more improvement ahead. Permits for single-family homes are 7.4% higher than starts in states requiring building permits, well above the historical norm. Many observers feel home building is in the early stages of a serious rebound. Supporting this, the National Association of Home Builders reported builder confidence higher in February, going from 15 to 17 points, 8 points up from a year ago.

Although the Fed will stop buying Mortgage Backed Securities (MBS) at the end of March, some analysts now feel this may not cause mortgage rates to rise much, if at all. That’s because Fannie Mae and Freddie Mac recently announced their plan to buy up to $200 billion in delinquent loans from their own MBS and pass-through pools. Friday the Mortgage Bankers Association reported the percentage of delinquent home loans shrank in Q4. MBA chief economist Jay Brinkmann feels that fewer new problem mortgages could be signaling the “beginning of the end” of the foreclosure crisis. Let’s hope so. 

>> Review of Last Week

UP UP UP UP… YUP, stocks went UP four days in a row, which constituted all the trading days there were in the holiday-shortened week. Investors seemed to be responding to a cessation of fears coming out of Europe, encouraging economic data, good corporate earnings and the news from the Fed.

The minutes from the Fed’s January FOMC meeting stated economic conditions still warrant low interest rates, although their GDP growth estimate went from 3.0% to 3.2% for the year. Then Thursday, as reported in an Inside Lending Bulletin, the Fed raised its discount rate on emergency loans to banks by 0.25%, to 0.75%. The discount rate is not the Fed funds rate and the central bank said the increase does not “…signal any change in the outlook for the economy or for monetary policy….” Some analysts feel the Fed was just trying to appease inflation “hawks”. The irony was, the CPI inflation reading came in the next morning below consensus expectations, up a scant 0.2%!

Earlier in the week, the PPI reading on wholesale inflation came in a little higher than expected, but this was balanced by the good news on housing starts, plus better-than-expected earnings from John Deere, Merck, Kraft, Hewlett-Packard and Wal-Mart. Equally encouraging, industrial production went UP 0.9% in January, putting it up at an 8.9% annual rate for the last six months. More evidence that manufacturing is at the heart of this recovery.

For the week, the Dow was UP 3.0%, to 10402.35; the S&P 500 was UP 3.1%, to 1109.17; while the Nasdaq climbed UP 2.8%, to 2243.87.

Stocks went up for the week, so can you guess which way bonds headed? Correct. The FNMA 30-year 4.5% bond we watch ended down 69 basis points, closing at $100.22. Mortgage rates, however, still held at their historically low levels.

>> This Week’s Forecast

HOMES, CONSUMERS, Q4 GDP… The week gives us more takes on housing, with New Home Sales on Wednesday and Existing Home Sales Friday. There are two looks at the consumer mindset as well, with Consumer Confidence on Tuesday and the University of Michigan Consumer Sentiment Index on Friday. Also Friday is the second GDP estimate for Q4, showing positive economic growth coming out of the recession. The week ends on another key manufacturing measure –the Chicago PMI.

>> 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 February 22 – February 26

Date Time (ET) Release For Consensus Prior Impact
Tu

Feb 23

10:00 Consumer Confidence Feb 55.0 55.9 Moderate
W

Feb 24

10:00 New Home Sales Jan 355K 342K Moderate
W

Feb 24

10:30 Crude Inventories 2/19 NA 3.08M Moderate
Th

Feb 25

08:30 Initial Unemployment Claims 2/20 460K 473K Moderate
Th

Feb 25

08:30 Continuing Unemployment Claims 2/13 4.570M 4.563M Moderate
Th

Feb 25

08:30 Durable Goods Orders Jan 1.5% 0.3% Moderate
F

Feb 26

08:30 GDP – Second Estimate Q4 5.7% 5.7% Moderate
F

Feb 26

08:30 GDP Deflator – Second Estimate Q4 0.6% 0.6% Moderate
F

Feb 26

09:45 Chicago PMI Feb 59.0 61.5 HIGH
F

Feb 26

09:55 Univ. of Michigan Consumer Sentiment – Final Feb 74.0 73.7 Moderate
F

Feb 26

10:00 Existing Home Sales Jan 5.50M 5.45M HIGH

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months The Fed discount rate went up last week, but experts say that doesn’t mean the Fed funds rate is moving any time soon. Please also note that discount rate moves are made by the district banks, not the Fed. With jobs still lagging in the recovery, economists feel the Fed funds rate will stay where it is through June. 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
Mar 16 0%–0.25%
Apr 28 0%–0.25%
Jun 23 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Mar 16 1%
Apr 28 1%
Jun 23 7%

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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