Austin Mortgage Market Update – For the week of January 4, 2010

For the week of January 4, 2010 – Vol. 8, Issue 1

>> Austin Mortgage Market Update

INFO THAT HITS US WHERE WE LIVE Last Tuesday the Case-Shiller Home Price Index for 20 cities came in UP a seasonally adjusted 0.4% for October. This was the fifth consecutive monthly increase for the index. Year-over-year, prices are still down 7.3%, but that’s a less steep rate of decline than we’ve been seeing.

It looks like home prices could be stabilizing, though well below their peaks in most markets. This price decline, plus the dramatic drop in mortgage rates, have made homes more affordable than they’ve been in a long time. A writer for the Wall Street Journal compared home price index values, mortgage rates and average weekly earnings going back to 1987. The finding? On average, housing is as affordable now as it was in the mid-1990’s, when homes were a real steal. Of course, this conclusion is based on average prices, so affordability may be greater or less in individual markets.

Christmas Eve, the Treasury lifted the limit on the money it can put into Fannie Mae and Freddie Mac to keep their net worth positive over the next three years. Some economists point out that Fannie and Freddie could now replace the Fed as a big buyer of mortgage-backed securities to help keep mortgage rates down after March 31. That would be great, but nothing is certain. Smart buyers are taking advantage of TODAY’S low mortgage rates AND the expanded tax credit that requires a signed contract by April 30 and a closing by June 30!

>> Review of Last Week

SLIDING INTO 2010… The stock market was up for three out of the four days of trading last week, but New Year’s Eve saw a 120-point drop in the Dow, which left it and the other major indexes sliding down ever so slightly for the week. But for the year, the indexes were decidedly up, coming off the bottom stock prices hit last March. And there were other positive economic indicators to lift our spirits going into 2010.

Tuesday, Consumer Confidence for December came in at 52.9, continuing its upward move from the prior month’s 50.6 reading. This Conference Board survey showed consumers more optimistic, based on their expectations the economy will keep improving over the next six months. Wednesday, the Chicago PMI (Purchasing Managers Index) for November registered 60.0, way better than expected, reflecting continued growth in manufacturing in another key region of the country.

All this encouraging news was followed Thursday with Initial Unemployment Claims coming in at 432,000, well below consensus estimates and the lowest number we’ve seen in a year and a half! Continuing Claims also keep shrinking, now drifting into 4 million territory. Employment has always been closely tied to the health of the housing market, so positive moves like these should be noted by all interested parties.

For the week, the Dow was down just 0.9%, to 10428.05; the S&P 500 was down 1.0%, to 1115.10; while the Nasdaq was down 0.7%, to 2269.15.

The bond market, which closed early on Thursday, experienced a volatile week. When all was said and done, the FNMA 30-year 4.5% bond we watch ended the week up just 3 basis points, closing at $99.84. Mortgage rates still remain at historically low levels.

>> This Week’s Forecast

WAITING ON THE JOBS NUMBERS… The end of this week delivers the all-important Employment Report for December. A key element will of course be the Unemployment Rate. We might see a tick up from last month’s drop to 10%. While we await this news, the main focus for folks like us will be Pending Home Sales on Tuesday. ISM indexes will take the measure of Manufacturing on Monday and Service businesses come Wednesday.

>> 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 4 – January 8

Date Time (ET) Release For Consensus Prior Impact
M

Jan 4

10:00 ISM Manufacturing Dec 54.0 53.6 HIGH
Tu

Jan 5

10:00 Pending Home Sales Nov –3.0% 3.7% Moderate
W

Jan 6

10:00 ISM Services Dec 50.5 48.7 Moderate
W

Jan 6

10:30 Crude Inventories 12/31 NA –1.54M Moderate
Th

Jan 7

08:30 Initial Unemployment Claims 01/02 445K 432K Moderate
Th

Jan 7

08:30 Continuing Unemployment Claims 12/26 5.040K 4.981M Moderate
Th

Jan 7

10:30 Crude Inventories 12/31 NA –1.54M Moderate
F

Jan 8

08:30 Average Workweek Dec 33.2 33.2 HIGH
F

Jan 8

08:30 Hourly Earnings Dec 0.2% 0.1% HIGH
F

Jan 8

08:30 Nonfarm Payrolls Dec 0 –11K HIGH
F

Jan 8

08:30 Unemployment Rate Dec 10.1% 10.0% HIGH

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months. Some economists are beginning to feel the Fed will start hiking rates this Spring. But the vast majority of observers — 83% — still feel the Fed will hold to its commitment to keep rates 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 7%
Apr 28 17%
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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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