For the week of May 9, 2011 – Vol. 9, Issue 19
|>> Austin Mortgage Market Update
QUOTE OF THE WEEK…“A will finds a way.”–Orison Swett Marden, American writer
INFO THAT HITS US WHERE WE LIVE…For those of us with a strong will to succeed in this housing recovery, the way appears to be by focusing on the extraordinary affordability of today’s residential market. Part of this affordability lies in the fact that mortgage rates fell again for the third week in a row, according to Freddie Mac’s weekly survey of national average rates for conforming mortgages. This drop took them to their lowest point of the year. The Mortgage Bankers Association (MBA) weekly survey reported demand for purchase loans was UP a seasonally adjusted 0.3% from the prior week.
The National Association of Realtors (NAR) released another annual forecast, this one predicting a 1.8% drop in the medium price of existing homes this year. Sales of existing homes, however, are expected to grow almost 8%, which shows that more buyers are realizing there are outstanding bargains out there, especially when lower home prices are coupled with the low mortgage interest rates. In solid support of this is the recent report that shows it’s cheaper to buy a home than to rent in 39 of the 50 largest cities in the U.S.
BUSINESS TIP OF THE WEEK…A customer’s experience with your business should be consistent. Customers should come away with the same sense of your unique professionalism and style from every interaction–emails to voicemails, phone conversations to face-to-face meetings.
>> Review of Last Week
IT WAS WILD…Wall Street gave investors a wild ride, in a week that began with the death of Osama bin Laden and ended on a mixed April jobs report. The net result was that after two weeks of gains, all three major stock indexes slid a bit. Commodities also took a hit, with crude oil prices off almost 15% for the week. This is good for consumers, who should get lower gas prices, and good for the rest of the economy, as it starts seeing some of that money which had been going into our tanks. ISM Manufacturing and Services were down for the month, though still indicating growth. Q1 Productivity was up, but lower than the prior quarter.
The April Employment Report held a few surprises. Overall payrolls, expected to increase by 183,000, came in at 244,000 new jobs. The private sector had the best gain in over five years, adding 268,000 new jobs (the loss of government jobs lowered the overall reading). Nonetheless, these numbers still describe a slow recovery, as the pace of job creation was far higher coming out of previous recessions. Also on the downside, average hourly earnings were up less than inflation, at only 0.1%, and the unemployment rate climbed back to 9%, as more people stopped looking for jobs.
For the week, the Dow ended down 1.3%, at 12,639; the S&P 500 was down 1.7%, to 1,340; and the Nasdaq was down 1.6%, ending at 2,828.
Bond prices moved higher, with safe haven buying from investors concerned over Greece’s threats to leave the EU and those plummeting commodities prices. The price of the FNMA 4.0% bond we watch ended the week UP .97, the same amount as last week, closing at $100.14. Higher mortgage bond prices signal lower mortgage rates and national average rates for conforming mortgages fell again, as covered above.
DID YOU KNOW?…Crude oil dropped to $99.80 a barrel on Thursday, the first time it’s been under $100 in almost two months. But analysts say crude will have to stay around $100 a barrel for 5–10 days before we see gas prices come down at the pump.
>> This Week’s Forecast
INFLATION, CONSUMER FEELINGS, CONSUMER SPENDING…This is the week for looking at inflation once again. Thursday’s Producer Price Index shows us how prices are doing at the wholesale level. The overall headline number will continue just shy of 1% with the core number holding at 0.3%. How much of this price increase gets passed on to the consumer will be told by Friday’s Consumer Price Index. The Fed focuses on Core CPI, which excludes food and energy and is expected to rise to 0.2%.
We’ll see how much consumers are spending with Thursday’s Retail Sales for April which should show continued growth, although at a slower rate when they take out car sales. Consumer feelings will be felt Friday with the University of Michigan Sentiment Index, forecast to be down slightly for May.
>> 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 9 – May 13
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months…Even though more economists are talking about the need for the Fed to raise the Funds rate to curb inflation, virtually none believe Chairman Bernanke will listen to them any time soon. 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: