Texas Mortgage Market Update – For the week of March 25, 2013

>> Texas Mortgage Market Update

QUOTE OF THE WEEK… “Put a grain of boldness into everything you do.”–Baltasar Gracian (1601–1658), Spanish writer and philosopher

INFO THAT HITS US WHERE WE LIVE… The U.S. real estate market is certainly putting some boldness into its recovery, as indicated by recent reports. February Existing Home Sales shot up 10.2% from a year ago, the fastest sales pace since the homebuyer tax credit boost in November 2009. The median existing home price is UP 11.6% versus a year ago and has now posted year-over-year increases 12 months in a row! And the FHFA index of prices for homes financed with conforming mortgages is UP 6.5% the past year.

Home builders are showing some boldness too, as February Housing Starts came close to a 5-year high, at a 917,000 annual rate, 27.7% higher than a year ago. Building permits were UP 4.6% in February, to a 946,000 yearly pace. But builders aren’t celebrating just yet. The National Association of Home Builders chairman explained, “… (builders’) enthusiasm is being tempered by frustrating bottlenecks in the supply chain for developed lots, along with rising costs for building materials and labor.” Hopefully, these issues will dissipate.

BUSINESS TIP OF THE WEEK… Don’t let your biases get in the way of hearing what others are telling you. Resist the impulse to defend or explain yourself, or offer a quick fix. You come up with better solutions when you don’t pre-judge the other person’s needs.

>> Review of Last Week

EURO GROAN… Question: Can a tiny island nation in the Mediterranean be the world focus of the financial markets? Answer: Yes, as long as it’s in the Eurozone. Last week Cyprus was the setting for the latest episode of the European debt crisis, giving investors a new reason to worry and groan. But by Friday, a bailout deal looked probable, so stocks ended the week off just a touch, the Dow breaking a four-week winning streak and the S&P 500 and Nasdaq sliding after three straight weeks of gains. This was a shame given the better than expected economic data on this side of the pond.

Our stream of good news began with housing starts, existing home sales, and home prices all ahead of estimates. The Philadelphia Fed Index also surprised to the upside, registering positive growth for manufacturing activity in that region after a month of contraction. Even the policy statement coming out of the FOMC meeting showed the Fed is a bit more optimistic about the economy, citing “a return to moderate economic growth.” The statement also acknowledged that “labor market conditions have shown signs of improvement in recent months” and “the housing sector has strengthened further.”

The week ended with the Dow a fraction lower, at 14512; the S&P 500 down 0.2%, to 1557; and the Nasdaq down 0.1%, to 3245.

Cyprus concerns were tempered by encouraging U.S. economic data, so bonds moved up less than they might have. The FNMA 3.5% bond we watch ended the week up .03, at $105.12. In Freddie Mac’s Primary Mortgage Market Survey, average fixed mortgage rates edged down, hovering near historical lows. Applications for purchase loans fell a tad for the week, but the Mortgage Bankers Association reported demand up nicely versus a year ago.

DID YOU KNOW?… Adam Smith was the 18th century Scottish economist who advocated less government intervention and more market influence in economic matters. His book, “The Wealth of Nations,” is considered the first modern work of economics.

>> This Week’s Forecast

NEW HOMES SLIP, GDP CRAWLS UPWARD… In case you hadn’t noticed, slow is the theme of this economic recovery. February New Home Sales are forecast to take a pause, slipping just a tad as the overall economy crawls north, with the Q4 GDP–3rd Estimate expected to creep up to a less-than-impressive 0.3% annual growth rate.

Looking ahead in real estate, February Pending Homes Sales are predicted up, but by less than the month before. This measure of contracts signed on existing homes indicates a moderate improvement in sales a couple of months out. The Core PCE Prices inflation reading should stay well within the Fed’s acceptable range.

>> 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 Mar 25 – Mar 29

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… At his press conference last week, Fed Chairman Ben Bernanke said the Funds Rate should stay near zero for quite some time, given the slow pace of recovery in jobs. 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: