>> Texas Mortgage Market Update

QUOTE OF THE WEEK… “Difficulties are just things to overcome, after all.” –Ernest Shackleton, Antarctic explorer

INFO THAT HITS US WHERE WE LIVE… Some see the recent rise in mortgage rates as a difficulty, but the latest Fannie Mae National Housing Survey posits a different point of view. Their chief economist says: “The spike in mortgage rate expectations this month…may increase housing activity in the near term by driving urgency to buy.” He explains: “Consumers may recognize that today’s still favorable mortgage rates and homeownership affordability levels will recede over time…. More prospective homebuyers may be deciding that now is the time to get off the fence.”

The share of survey respondents who believe mortgage rates will increase hit a record high 57%. And the share who believe home prices will go up in the year also came in at a record 57%. So guess what? 72% of respondents believe now is a good time to buy! Rates may ease anyway. The current rise was attributed to the Fed’s announcement it could begin tapering its bond purchases as soon as September. This sent bond prices down and mortgage rates up. But last week, comments from the Fed Chairman, reported below, implied the tapering is off.

BUSINESS TIP OF THE WEEK… As your last task of the workday, create tomorrow’s to-do list. Then next day, make those tasks your primary focus: if it’s not on the list, don’t do it.

>> Review of Last Week

THANKS, BEN… Wall Street owes a big thank you to Fed Chairman Ben Bernanke. The Dow and S&P 500 both ended the week at all-time highs, while the Nasdaq, ahead seven sessions in a row, enjoyed its longest winning streak in two years. Observers credited these blowout performances to remarks from Bernanke. The minutes from the last Fed meeting had left investors worried because some central bankers feel a tapering of their bond purchases could happen “soon.” But later, the Chairman clearly stated: “Highly accommodative monetary policy for the foreseeable future is what’s needed.” He said low inflation and high unemployment mean the Fed needs to press on with its stimulus.

Stimulus, of course, means the Fed’s $85 billion a month bond buying spree and rock-bottom Federal Funds Rates. All of this is good for business, while the Fed’s mortgage bond purchases keep those prices up and mortgage rates down. Bernanke was so successful in relieving investors’ fears, that they basically ignored the economic data that missed estimates. PPI wholesale inflation ran hotter than expected in June and Michigan Consumer Sentiment slipped below expectations for July. New weekly jobless claims were up 16,000, to 360,000, and continuing claims went up 24,000, to 2.98 million.

The week ended with the Dow up 2.2%, to 15464; the S&P 500 up 3.0%, to 1680; and the Nasdaq up 3.5%, to 3600.

Bond prices recovered last week on the disappointing economic data and Bernanke’s comments. The FNMA 3.5% bond we watch ended the week up 1.77, to $100.08. According to Freddie Mac’s Primary Mortgage Market Survey, national average mortgage rates continued to trend higher for the week ending July 11. This was based on market speculation that the Fed will reduce future bond purchases. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information. Rates are still at attractive levels.

DID YOU KNOW?… Monetary policy is the process by which a central bank controls the supply of money to promote economic growth and stability. The goals usually include an inflation target and low unemployment.

>> This Week’s Forecast

CONSUMERS ARE BUYING, INFLATION’S OK, HOME BUILDERS HAPPY, FACTORIES SLIP… This week should show that consumers continue to do their part to help the recovery, with Retail Sales predicted up a healthy 0.7% for June. That month’s Consumer Price Index should indicate inflation still under control.

Builders continue to boost the housing recovery, with Housing Starts expected up again for June and Building Permits predicted to hit a 1 million unit annual rate. Things aren’t quite so copacetic on the factory scene, with both the NY Empire and Philadelphia Fed Manufacturing Indexes off for July, though still showing expansion.

>> 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 July 15 – July 19

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… The Fed made it clear last week that it would do nothing to hamper the recovery, so economists now expect to see a super low Funds Rate well into the future. 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: