Austin Mortgage Market Update – For the week of January 17, 2011

For the week of January 17, 2011 – Vol. 9, Issue 3

INFO THAT HITS US WHERE WE LIVE Down in Orlando, Florida, last week there were more housing market forecasts for the year just begun. Bottom line? Housing economists are cautiously optimistic about a recovery during 2011. These economists were presenting their views at the annual meeting of the National Association of Home Builders (NAHB). None of the experts see a robust upturn for housing. But they do feel that home sales, which have been in a bit of a stall, may start to recover soon.

The prevailing opinion is that the residential market should pick up in the spring, thanks to low mortgage rates and home prices at bargain levels. The NAHB’s chief economist feels that recent economic indicators are “signifying growing consumer confidence.” These indicators include job creations, good retail sales, and increasing purchases of big ticket items like cars and furniture. Freddie Mac’s chief economist sees home prices bottoming in the first six months. He expects mortgage rates to edge up slightly but still remain at historically low levels. Overall, home sales are forecast to be up from 4% to 10% year-over-year and for new construction to be up by 20%.

>> Review of Last Week

THINGS KEEP LOOKING UP… Investors seem to be more positive about the U.S. economy and the European financial situation. They articulate those views by trading stock prices up and last week, they sent the Dow, the broadly based S&P 500, and the tech-heavy Nasdaq UP by solid percentages. Across the pond, Portugal, Italy, and Spain got some much needed support. Over here, Q4 corporate earnings season got off to a good start, supported by some encouraging economic data.

A slight glitch in the proceedings came from an increase in weekly unemployment claims to 445,000. But the four-week moving average is at 417,000 and continuing unemployment claims dropped by 248,000 to 3.88 million, the lowest it’s been since October 2008. Strongly positive economic signs came from a shrinking trade deficit, with exports running ahead of imports over the past year. Inflation appears to be in check, as measured by Core CPI, the Fed’s key reading on the matter. This means the Fed Funds rate can stay at its current low levels.

Retail sales were up slightly less than expected for December, but they did reach an all-time high, surpassing the November 2007 figure. For the last year, retail sales are up almost 8% and they’ve been growing at a 13% annual rate the past three months. In corporate Q4 earnings news, major players Alcoa, JPMorgan Chase, and Intel beat estimates and issued better than expected guidance going forward.

For the week, the Dow ended up 1.0%, at 11,787; the S&P 500 went up 1.7%, to 1,293; and the Nasdaq shot up 1.9%, ending at 2,755.

Bond prices went on an up and down trip last week, with varied results at the finish. The FNMA 4.0% bond we watch ended virtually flat, down 4 basis points for the week, closing at $99.14. According to Freddie Mac’s weekly survey of conforming mortgages, average fixed-rate mortgage rates dropped for the second week in a row. The national average rate for 30-year fixed rate mortgages hit a four-week low after their slight uptick at the end of last year.

>> This Week’s Forecast

HOUSING, MANUFACTURING, THE ECONOMY OVERALL… Financial markets are closed Monday in observance of Martin Luther King Day. The rest of the week features some measures of the housing market. Wednesday’s December Housing Starts and Building Permits will show us the mindset of home builders. Starts are forecast to be down a little, but the weather wasn’t conducive to breaking ground in many regions of the country. Permits indicate starts a month or two out and they should be up a little, the same as December Existing Home Sales, coming on Thursday.

Manufacturing is expected to expand in the New York region, as measured by Tuesday’s Empire State Index, but Thursday’s Philadelphia Fed Index may show a slight manufacturing contraction. Also that day, the Leading Economic Indicators (LEI) Index for December is forecast to continue to improve, although at a slightly slower rate than the previous month.

>> 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 17 – January 21

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months With inflation still under control, economists expect the Fed to keep the Funds Rate at its super low level well into the year. The experts feel the economy is not yet strong enough to handle a rate hike just yet. 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%

Probability of change from current policy: