Let me set the record straight on the availability of USDA funds. First of all, USDA has NOT been reallocated and will run out of money soon. Locking in a loan does NOT guarantee a borrower will receive USDA money. Mortgage companies and loan officers telling borrowers and REALTORS that THEY have guaranteed USDA money is plain and simple not true. The only way to guarantee a loan from USDA is to have USDA approve the loan and issue the certificate. USDA approval can only happen once the mortgage company approves first, and then sends the loan to USDA for approval. I have received emails from loan officers who read my blog. They are adamant that USDA funds are still available to guarantee their customers. I will take the high road with this program and let the other guy be the one explaining to the REALTOR and borrower that USDA ran out of funds despite being told otherwise. Disappointing your customer will be multiplied by 10. Telling the truth will earn you respect. Borrowers still MIGHT be able to get a USDA loan, but I would never guarantee a loan program that is likely to run out of funds before closing.
CPI, inflation at the consumer level, rose a meager .1% while the core (ex-food and energy) remained unchanged. Owner’s equivalent rent (.25% of the index) helped the core index while a drop in transportation costs (-.1%) helped the overall index. The report was a good one, telling us that there is little to no inflation in the pipeline. Retail Sales were also released, up a better than expected 1.6% with the ex-autos component up .6%. The breakdown was interesting as retail stores increased sales (primarily women’s and teen apparel) yet electronic sales fell 1.3%. Sales of food and beverages rose .2% and as I mentioned, clothing sales jumped 2.3%.
Year on year, total retail sales are up 7.6% which looks good on the surface but digging into the details, there are concerns. One is that the majority of sales involve purchases of less than $500.00. Probably pent up demand as sales, especially fashion have not been great since 2007. The other question is how sustainable is this pace given our soft employment picture.
Mortgage applications for last week were on the slide as well, down 9.6% with both refi’s and purchase applications off an equal amount. A spike in interest rates combined with an under employed borrower will continue to be a challenge. The good news here is that Austin interest rates will stay low until the recovery brings housing into the mix. At that time, Austin mortgage rates will go up a bit but no one will care as the public will feel better about the future and homes for sale will have 3 contracts to present the first week they are on the market. Get ready, it will happen.
As far as the market is concerned, stocks are better (up 50 on the big board), the 10 year note is off 6/32’s (yield 3.83%), and mortgage backs are off the same amount (6/32’s). Buyers have not been able to maintain overnight gains which is consistent with a trendless market. As we may see more range trading ahead, the overall chart picture has improved on both the market profile and slow stochastics metrics. The improvement we see in a number of studies will keep us in the neutral/bullish camp for the time being.