Texas Mortgage Market Update – For the week of August 27, 2012

For the week of August 27, 2012 – Vol. 10, Issue 35

>>Texas Mortgage Market Update 

QUOTE OF THE WEEK… “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” –Warren Buffett, American business magnate, investor, and philanthropist

INFO THAT HITS US WHERE WE LIVE… Home prices have certainly been marked down from their highs of a few years ago, and buyers seem to be finally realizing there are some very nice homes out there at some very nice prices. The latest evidence came when Existing Home Sales shot UP 2.3% in July to a 4.47 million unit annual rate. Sales of these homes are now UP 10.4% from a year ago. But those contemplating a purchase should not dally. The median price of an existing home is UP 9.4% over a year ago, the largest gain since the peak in early 2006!

July New Home Sales are UP 3.6% for the month, to a 372,000 annual rate, and are UP 25.3% over a year ago. The months’ supply is now down to 4.6. The median price is also down slightly (2.5%) from a year ago, but some analysts put this to the fact that new homes can have a tough time competing against existing homes, many of which are less than 10 years old. The FHFA index of prices for homes financed by conforming mortgages is UP 3.6% from a year ago, up at a 9.8% annual rate the last five months.

BUSINESS TIP OF THE WEEK… When you decide on a goal, take action immediately. Don’t try to do it all at once, but make your first step a big one. Block out critical dates. Get delivery commitments from others. Write a first draft of a proposal. 

>> Review of Last Week

THE RUN IS DONE… The Dow and the S&P 500 stock indexes were up six weeks in a row and the Nasdaq five, but the run was done last week, as they all slid a tad. With four down days, the dip would have been worse had it not been for the 100+ point gain on Friday. This was motivated by a letter released from Fed Chairman Bernanke in which he said the central bank has the means to take further steps to bolster the economy. Clarification of this may come when he speaks this Friday at the annual confab in Jackson Hole, Wyoming.

FOMC Minutes from the last Fed meeting July 31 also indicated they could provide additional easing if general economic conditions deteriorate further. Those messages continue to be mixed. Durable Goods Orders were up 4.2% in July, but when you take out airplanes and autos, they were down 0.4%, way worse than expected. Initial Weekly Jobless Claims headed up again, this time by 4,000, to 372,000, while the four-week moving average is now at 368,000. Continuing Unemployment Claims grew to 3.32 million.

For the week, the Dow ended down 0.9%, to 13158; the S&P 500 was down 0.5%, to 1411; and the Nasdaq was down 0.2%, to 3070. 

Bond prices moved higher as stocks lost their footing until the Fed Chairman’s letter on Friday gave hopes for the quantitative easing some economists think may help. The FNMA 3.5% bond we watch ended the week UP .89, at $105.13. Average mortgage rates nationally edged up for the fourth week in a row, although they’re well below year-ago levels. Buyers appear to be coming off the fence, as purchase loan applications were UP 0.9% for the week.

DID YOU KNOW?… Deflation, the opposite of inflation, is a decline in price levels, often caused by a reduction in the money supply or credit. It can have the side effect of increasing unemployment. Quantitative easing is intended to prevent deflation.

>> This Week’s Forecast

GDP, PENDING HOME SALES, INFLATION AND THE CONSUMER MINDSET… The week features the 2nd Estimate of Q2 GDP, with economic growth forecast well under 2%. July Pending Home Sales are expected flat coming off June’s decline. That means Existing Home Sales still won’t be booming a couple of months out.

Inflation should remain tame for July as measured by the Fed’s favorite Core PCE Prices. But the consumer’s outlook doesn’t seem to be improving in August, with both Consumer Confidence and Michigan Consumer Sentiment expected to remain right where they’ve been.

>> 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 Aug 27 – Aug 31

>> Federal Reserve Watch   

Forecasting Federal Reserve policy changes in coming months… With another round of quantitative easing looming, economists do not expect a rise in the Funds Rate 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: