For the week of May 21, 2012 – Vol. 10, Issue 21


>> Texas Mortgage Market Update 

QUOTE OF THE WEEK…“Do what you can, with what you have, where you are.” –Theodore Roosevelt, 26th U.S. President


INFO THAT HITS US WHERE WE LIVE… Home builders are doing plenty with what they have, as Housing Starts rose 2.6% in April to a 717,000 annual rate. Single-family units were up 2.3% for the month and are up 18.8% from a year ago. Multi-family starts were up 3.2% for the month and are up a whopping 63.0% from a year ago. This reflects interest in the condo market, attractive to first time buyers and downsizers, as well as to investors in rental units. Building Permits were down 7.0% in April to a 715,000 annual rate, although permits for single-unit homes are up 18.5% versus a year ago.


Experts say housing starts have to hit a 1.5 million annual rate just to meet the need created by population growth and “scrappage” of older units. That probably won’t happen until 2016, so the home building recovery is still very young. But the National Association of Home Builders reported builders’ sentiment rose in May to its highest level in five years. At 29, it still has a long way to go before it’s in positive territory above 50, last seen in April 2006.


BUSINESS TIP OF THE WEEK… A French proverb says, “People count up the faults of those who keep them waiting.” So when a colleague needs your input or a client needs an answer, hustle!

>> Review of Last Week

BEARING DOWN… Wall Street’s bears remained in control as the Dow and S&P 500 headed lower for the third week in a row, the S&P 500 posting its worst weekly performance since November. Investors worried about Greece leaving the euro zone. The country’s politicians couldn’t form a coalition government, so a fresh vote needs to be taken. Over here, the continuing saga of JP Morgan’s big trading loss kept investors on edge, along with a big drop in the Philly Fed index that showed a manufacturing slowdown in that region.


Continuing the disappointments, April Retail Sales were up only half what was forecast and the Leading Economic Indicators (LEI) index surprised with a drop. But on the positive side, the CPI inflation reading came in without any shocks. Also, Industrial Production surged a better than expected 1.1% in April and the Empire State Manufacturing Index handily beat expectations for May, which dispelled factory sector concerns. Friday saw the frenzy around the IPO of social website Facebook, whose shares closed up a mere 0.6%.


For the week, the Dow ended down 3.5%, at 12369; the S&P 500 closed down 4.3%, to 1295; and the Nasdaq sank 5.3%, to 2779. 


As investors worried about Greece and swallowed hard on some disappointing economic data, they flocked to the safe haven of bonds. Mortgage-backed securities did well, with the FNMA 3.5% bond we watch finishing the week UP .15, to $104.16. Rising bond prices drove national average mortgage rates down deeper into record territory in Freddie Mac’s weekly survey, although purchase loan demand dipped.


DID YOU KNOW?… The census reported the median size of a new home in 2010 was 2,169 square feet, down from the 2007 peak of 2,277 square feet.

>> This Week’s Forecast

APRIL HOME SALES, EXISTING AND NEW… The big economic news this week covers the full read on April home sales, starting with Existing Home Sales on Tuesday, expected UP to a 4.65 million annual rate. Wednesday we’ll see New Home Sales for the month, also forecast up, but just by a small amount, to 340,000 units.


We will continue to monitor Initial Jobless Claims, looking for any improvements in the employment picture, so vital to the housing market’s recovery. Unfortunately, no major changes for the better are predicted. Durable Goods Orders should inch into positive territory from the prior month’s big drop, a good sign.

>> 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 May 21 – May 25


 Date Time (ET) Release For Consensus Prior Impact

May 22

10:00 Existing Home Sales Apr 4.65M 4.48M Moderate

May 23

10:00 New Home Sales Apr 340K 328K Moderate

May 23

10:30 Crude Inventories 05/19 NA 2.128M Moderate

May 24

08:30 Initial Unemployment Claims 05/19 365K 370K Moderate

May 24

08:30 Continuing Unemployment Claims 05/12 3.250M 3.265M Moderate

May 24

08:30 Durable Goods Orders Apr 0.3% -3.9% Moderate

May 25

09:55 Univ. of Michigan Consumer Sentiment May 77.5 77.8 Moderate


>> Federal Reserve Watch   

Forecasting Federal Reserve policy changes in coming months… Virtually all economists believe the Fed will keep rates super low well into next year. 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
Jun 20 0%–0.25%
Jul 31 0%–0.25%
Sep 12 0%–0.25%


Probability of change from current policy:


After FOMC meeting on: Consensus  
Jun 20      <1%  
Jul 31      <1%  
Sep 12      <1%