For the week of May 2, 2011 – Vol. 9, Issue 18
|>> Austin Mortgage Market Update
QUOTE OF THE WEEK…“I see that the path of progress has never taken a straight line, but has always been a zigzag course.”–Kelly Miller, American sociologist
INFO THAT HITS US WHERE WE LIVE…Last week’s reports showed the progress of the housing market recovery is definitely on a zigzag trajectory. Zigging upward were new home sales, UP a strong 11.1% in March, hitting the 300,000 threshold annual rate. The supply of new homes dropped to 7.3 months and the inventory fell again, to its lowest level since 1967. Also zigging UP 5.1% were March Pending Home Sales, which measure contracts on existing homes and point to continued gains in existing home sales come April and May.
But the path to progress in the housing market recovery zagged downward in the pricing area. The FHFA index of prices for homes financed with conforming mortgages slipped 1.6% in February. The Case-Shiller index of home prices in the top 20 metro areas dropped 0.2% for February (seasonally adjusted). But observers were expecting a bigger decline. The good news for buyers is that home prices are now down to 2004 levels and there are phenomenal deals to be had in many markets.
BUSINESS TIP OF THE WEEK…Don’t hire a person just to fill a position. Instead, evaluate candidates on their ability to contribute to the team you’re putting together to build your business.
>> Review of Last Week
THE MONTH ENDS STRONGLY…Once again, investors on Wall Street sent stock prices higher and the Dow Jones Industrial Average wound UP 4% for April, its best monthly gain since December. This happened in spite of the still slipping home prices covered above, plus a preliminary Q1 GDP reading of just a 1.8% annual growth rate. But consumer inflation is up only 1.8% versus a year ago and Core PCE prices, which exclude food and energy, came in just 0.9% up over the past year. Consequently, the Fed, as expected, kept the Funds rate at its rock bottom level coming out of their FOMC meeting on Wednesday.
That meeting was followed by the historic, first-ever press conference by a Fed chairman. Ben Bernanke used this event to tell the world he doesn’t see the need for any policy changes or a hike in the Funds rate. Investors approved of this steady-as-she-goes attitude from the Fed and were further buoyed by more good news on corporate earnings. Around 300 of the S&P 500 companies have now reported their Q1 earnings and 74% delivered upside surprises. Overall, corporate earnings are now forecast to go up 16% this quarter, way better than the original 11.5% estimate.
For the week, the Dow ended UP 2.4%, at 12,811; the S&P 500 was also UP 2.0%, to 1,364; and the Nasdaq was UP 1.9%, ending at 2,874.
Bond prices moved higher, reacting positively to the tame inflation report and the slowing economic recovery reflected in the lower GDP growth number. The price of the FNMA 4.0% bond we watch ended the week UP .97, closing at $99.17. Higher mortgage bond prices signal lower mortgage rates. Freddie Mac’s weekly survey showed national average rates for conforming mortgages at historically low levels, falling for the second week in a row.
DID YOU KNOW?…The Pending Home Sales Index reported last week is based on sales that are under contract but have not yet closed. A score of 100 equals the level of contract activity in 2001, the first year data was compiled for the index. In March the index was at 94.1, up from 89.5 in February.
>> This Week’s Forecast
HOW’S BUSINESS? HOW’S JOBS?…From beginning to end, this week features answers to those two burning questions. Monday’s ISM Index for April is expected to show a slight slowdown in the growth of manufacturing, although the expected reading is still well above 50, indicating expansion. Wednesday’s ISM Services is forecast to show the same level of continued growth in that sector of the economy, which provides about 85% of our country’s jobs.
How the economy is doing creating those jobs will be reported in Friday’s Employment Report for April. Another 183,000 jobs are expected to be added, fewer than in March, but the unemployment rate should hold at 8.8%.
>> 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 May 2 – May 6
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months…If anyone doubted it, Chairman Bernanke said it himself at last week’s historic press conference — rates will stay at their current rock bottom level “for an extended period.” Many economists are taking that to mean till the end of the year. 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: