For the week of January 21, 2013 – Vol. 11, Issue 3

>> Texas Mortgage Market Update

QUOTE OF THE WEEK… “Well done is better than well said.”–Benjamin Franklin, American inventor and statesman

INFO THAT HITS US WHERE WE LIVE… What’s doing pretty well is the housing market. Last Monday, Fed Chairman Ben Bernanke called housing one positive factor “that’s going to help us have, I hope, a better year in 2013 and 2014.” Evidence for that came Thursday with an unexpected 12.1% bump in December Housing Starts, to a 954,000 annual rate. Single family starts are up 8.1% for the month and 18.5% over a year ago. New Building permits were up to a 903,000 annual rate, up 27.3% for single-family homes versus a year ago.

The recent “fiscal cliff” agreement had several homeowner tax benefits. For 2012 and 2013, homeowners still get tax credits for certain energy efficient home improvements and mortgage insurance premiums remain tax deductible if your adjusted gross income is below $110,000. Plus, mortgage principal reductions or cancellations by lenders will continue to be treated as ordinary income to homeowners. These include principal balance reductions from loan modifications, short sales, deeds-in-lieu, or foreclosures. NOTE: Always consult a tax professional for the definitive answer to any tax question.

BUSINESS TIP OF THE WEEK… The key to becoming a better communicator is really listening to what others say. Make eye contact, paraphrase what the person is telling you, and don’t interrupt!

>> Review of Last Week

THE NEW YEAR’S CELEBRATION CONTINUES… The year has certainly begun well on Wall Street, as investors pushed stock prices up for another week. The gains were not as dramatic as last week’s, but equities did head north, to their highest weekly close since 2007. That’s the year before the recession began, so reaching this level is indeed an encouraging sign. Further encouragement came from December’s healthy Housing Starts and Retail Sales reports, which both surprised to the upside. Compared to a year ago, retail sales are UP 4.7%.

The Philadelphia Fed and New York Empire Indexes gave disappointing reads on manufacturing in those regions. But that didn’t bother investors in light of the unexpected drop in weekly Initial Unemployment Claims, even though Continuing Claims did edge up a bit. Inflation remains under control, with wholesale PPI prices up just 1.3% and consumer CPI prices up 1.7% versus a year ago. But mixed signals are what we’re getting from the economic data and the week ended with Michigan Consumer Sentiment coming in as a bit of a disappointment.

The week ended with the Dow UP 1.2%, to 13650; the S&P 500 UP 0.9%, to 1486; and the Nasdaq UP 0.3%, to 3135.

Given the strength of stocks, bonds did well, investors apparently liking their safety in light of the slow economic growth. The FNMA 3.5% bond we watch ended the week down just .02, at $106.01. Freddie Mac’s Weekly Survey showed national average mortgage rates hovering near historical lows. The Mortgage Bankers Association said purchase loan applications were UP 13% for the week, at their highest level since April 2011. This is all great news for the housing market.

DID YOU KNOW?… A leading Internet research firm reported that online shoppers in the U.S. spent about $42.3 billion in the last two months of 2012, up 14% from the same period the year before.

>> This Week’s Forecast

HOME SALES, JOBLESS CLAIMS, LEADING INDICATORS… Not a lot of economic data this week, but a good housing market picture. Tuesday, December Existing Home Sales, having crossed the 5 million per year threshold in November, are expected to inch further into that happy territory. The week ends with December New Home Sales also heading north, though still well below where they need to be.

Initial Unemployment Claims should drift back up a tad, but the December Leading Economic Indicators index is predicted to be in positive territory, a good economic sign.

The stock and bond markets are closed today in observance of Martin Luther King Jr. Day.

>> 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 Jan 21 – Jan 25

 Date Time (ET) Release For Consensus Prior Impact
Jan 22
10:00 Existing Home Sales Dec 5.10M 5.04M Moderate
Jan 24
08:30 Initial Unemployment Claims 1/19 355K 335K Moderate
Jan 24
08:30 Continuing Unemployment Claims 1/12 3.200M 3.214M Moderate
Jan 24
08:30 Leading Economic Indicators (LEI) Dec 0.5% –0.2% Moderate
Jan 24
08:30 Crude Inventories 1/19 NA –0.951M Moderate
Jan 25
10:00 New Home Sales Dec 387K 377K Moderate

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… In his speech last week, Fed Chairman Bernanke gave no indication he’s anywhere near easing off his aggressive policy of keeping the Funds Rate super low to aid the recovery. 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%

After FOMC meeting on: Consensus
Jan 30 0%–0.25%
Mar 20 0%–0.25%
May 1 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Jan 30      <1%
Mar 20      <1%
May 1      <1%