Austin Mortgage Market Update – For the week of January 11, 2010

For the week of January 11, 2010 – Vol. 8, Issue 2
>> Austin Mortgage Market Update

INFO THAT HITS US WHERE WE LIVE It was reported last week that Pending Home Sales (contracts on existing homes) fell 16% in November, not at all surprising since buyers expected the $8,000 tax credit to expire at the end of October. This artificially boosted contract signings for August-October and artificially depressed them for November. Still, November pending sales were higher than at any time from mid-2007 to mid-2009.

Wednesday, the minutes from the Fed’s December 15–16 meeting were released, revealing some debate over the future of their purchases of Mortgage Backed Securities (MBS), which helped keep interest rates at record lows. The Fed said it would end MBS purchases March 31, but according to the minutes, “a few” of the Fed’s 12 members are in favor of expanding and extending the program. On the other side, one member felt “improvement in…the economic outlook suggested that…(MBS purchases) could be scaled back.”

Who knows what will happen. Most experts feel the rates on 30-year fixed-rate mortgages will head up during the next two years, so smart homebuyers are focusing on taking advantage of the present very favorable rate situation along with the tax credit still available.

>> Review of Last Week

A NICE START… The new year began very nicely on Wall Street with investors optimistically sending all major stock market indexes UP for the week. There were several pieces of economic data to feel good about. The ISM Manufacturing index rose to 55.9 in December, its highest level since April 2006, signaling industrial expansion five months in a row and indicating real economic growth at a 4.6% annual rate. The December ISM Services index hit 50.1, also signaling expansion, with its employment index moving to the highest level since September 2008.

Retailers across the board came in with higher than expected results for December. For example, Target’s same store sales were up 1.8% and Sears were up 0.4%, with Q4 earnings beating estimates. Auto companies reported December sales at an 11.2 million annual rate. This was a faster rise than expected, up 16% from June. Cash-for-clunkers got things started, but car and truck sales continue to build.

Thursday, Initial Unemployment Claims came in at 434,000, putting the four-week moving average at its lowest level since September 2008. Continuing Claims shrank to 4.8 million. Challenger, Gray & Christmas, the major Chicago-based job placement firm, reported layoffs down 72.9% from last year. But the big news came Friday with the December Employment Report. Nonfarm jobs declined 85,000, not as good as expected, but revisions to the prior month’s data showed jobs INCREASED 4,000 in November, their first gain in two years! The December unemployment rate held steady at 10.0%.

For the week, the Dow was UP 1.8%, to 10618.19; the S&P 500 was UP 2.7%, to 1144.98; while the Nasdaq was UP 2.1%, to 2317.17.

Bond prices didn’t do too badly in spite of the fact that investors were far more focused on stocks. The FNMA 30-year 4.5% bond we watch ended the week UP 25 basis points, closing at $100.09. This is good for mortgage rates, which dropped a bit on average, remaining at historically low levels.

>> This Week’s Forecast

EARNINGS, ENDING WITH DATA… The big focus will be the start of the reporting season for Q4 corporate earnings. U.S. corporations are expected to show increases in profits for the first time since Q2 of 2007, with a rise in revenues as well. These are the signs of economic health that economists say will lead to job creation.

Not much economic data til the end of the week, when we get December Retail Sales on Thursday and an important read on inflation with CPI numbers 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 January 11 – January 15

Date Time (ET) Release For Consensus Prior Impact
Tu

Jan 12

08:30 Trade Balance Nov –$34.5B –$32.9B Moderate
W

Jan 13

10:30 Crude Inventories 1/8 NA 1.33M Moderate
Th

Jan 14

08:30 Initial Unemployment Claims 1/9 433K 434K Moderate
Th

Jan 14

08:30 Continuing Unemployment Claims 1/2 4.800M 4.802M Moderate
Th

Jan 14

08:30 Retail Sales Dec 0.5% 1.3% HIGH
Th

Jan 14

08:30 Retail Sales ex-auto Dec 0.3% 1.2% HIGH
Th

Jan 14

10:00 Business Inventories Nov 0.2% 0.2% Moderate
F

Jan 15

08:30 Consumer Price Index (CPI) Dec 0.2% 0.4% HIGH
F

Jan 15

08:30 Core CPI Dec 0.1% 0.0% HIGH
F

Jan 15

08:30 Empire State Manufacturing Survey Jan 11.25 2.55 Moderate
F

Jan 15

09:15 Industrial Production Dec 0.6% 0.8% Moderate
F

Jan 15

09:15 Capacity Utilization Dec 71.8% 71.3% Moderate
F

Jan 15

09:55 Univ. of Michigan Consumer Sentiment Index Jan 73.8 72.5 Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months. Most economists feel the Fed will keep rates low for a long time, though a few say we could see a hike this Spring. Publicly, the Fed maintains rates should stay low for an extended period. 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 2%
Apr 28 8%
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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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