Texas Mortgage Market Update – For the week of June 17, 2013

>> Texas Mortgage Market Update 

QUOTE OF THE WEEK… “The greatest weapon against stress is our ability to choose one thought over another.” –William James, American psychologist and philosopher

INFO THAT HITS US WHERE WE LIVE… Here are two thoughts that should relieve some stress for those of us working in the housing market. Fannie Mae’s May 2013 National Housing Survey reported that the share of American’s who think now is a good time to sell and the share of those who think now is a good time to buy spiked sharply from April to May. 40% of respondents think it’s a good time to sell, up from 30% the month before, the largest gain in the survey’s 3-year history. And 76% of respondents think it’s a good time to buy!

They also reported that respondents expect home prices to go up 3.9% in the next 12 months, another record high for the 3-year survey. Later in the week, Fannie Mae’s Mid-Year Outlook predicted housing starts should be up 25% and home sales up 7% for the year. Their economists also feel that any mortgage rate increases are unlikely to trip up the recovery, since affordability remains near historical highs. An online listing site estimated rates could rise to 10.5% on a 30-year fixed-rate mortgage with 20% down payment before it’s more affordable to rent than to buy.

BUSINESS TIP OF THE WEEK… Attack your most challenging tasks early in the day when you’re most fresh. Save any busy work you have for the afternoon when your energy may slump a little.

>> Review of Last Week

STOCKS FALL ON FED FEARS… Last week investors got nervous that the Fed may begin tapering its bond buying program at this week’s meeting, from the current $85 billion a month rate. The program has helped keep stock prices up and interest rates down, so traders see any tapering as a negative and their fears sent all three stock indexes south for the third week out of the last four. The Fed’s bond buying will end when the economy or inflation picks up, so better than anticipated May Retail Sales and hotter than expected PPI producer prices kept many people skittish in the markets.

But wait. There was also evidence the economy is a long way from recovery. The manufacturing sector reported that Industrial Production was flat in May and factory Capacity Utilization dropped for the month. Then the University of Michigan Consumer Sentiment Index dipped more than expected in the preliminary June report. Lastly, continuing unemployment claims went up by 2,000. But on a better note, initial weekly jobless claims fell by 12,000, to 334,000.

The week ended with the Dow down 1.2%, to 15070; the S&P 500 down 1.0%, to 1627; and the Nasdaq down 1.3%, to 3424.

There was enough weakness in stocks and the economic data to send investors back into bonds, pushing up prices after six weeks of declines. The FNMA 3.5% bond we watch ended the week up .10, at $103.16. National average mortgage rates edged up again, but are still at historically attractive levels. As evidence of that, demand for purchase loans was up 5% for the week, and up 6% from a year ago, according to the Mortgage Bankers Association.

DID YOU KNOW?… Analysts feel mortgage rates could rise if the Fed stops its bond buying program. But last week, FOMC member James Bullard said, “…surprisingly low inflation readings may mean the Committee can maintain its aggressive program over a longer time frame.”

>> This Week’s Forecast

NO INFLATION, NO RATE CHANGE, MORE HOME BUILDING, MORE HOME SALES… The closely watched Consumer Price Index (CPI) is expected to show no huge move up for May. The FOMC Rate Decision on Wednesday should leave the Fed Funds Rate untouched. The policy statement will of course be examined for any indications of future Fed moves, as well as for the central bank’s overall take on the state of the economy.

On the housing front, analysts predict May Housing Starts will move ever closer to an annual rate of one million units. While more new homes are going up, more Existing Home Sales are being closed. That number is forecast to hit the 5 million unit annual rate 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 June 17 – June 21

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… Economists don’t see the Fed touching the super low Funds Rate at this week’s FOMC meeting. The Fed is waiting for a 6.5% unemployment rate or a serious spike in inflation. 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: