For the week of September 3, 2012 – Vol. 10, Issue 36


>> Texas Mortgage Market Update 

QUOTE OF THE WEEK… “He who has hope, has everything.” –Thomas Carlyle, Scottish satirical writer, historian and teacher

INFO THAT HITS US WHERE WE LIVE… It wasn’t that long ago when some pundits were saying hope was all we had in the housing market. But now our hope is being justified by some solid facts. Last Tuesday, the Case-Shiller S&P 500 index of home prices in the 20 largest metros posted a 0.9% gain (seasonally-adjusted) for June. For the month, 18 of the 20 metro areas showed gains; in the last three months, prices were up in all 20. Overall, prices are UP 0.5% compared to a year ago.

This encouraging news was followed by July Pending Home Sales. The index of contracts signed on existing homes scored its 15th consecutive month of year-over-year gains. The 2.4% hike over the prior month put the index at its highest reading in two years, at 101.7, “a level that is historically healthy,” according to the National Association of Realtors. Finally, “jumbo” mortgages (larger home loans not guaranteed by the federal government) were UP 65% in Q2 versus a year ago, posting the highest quarterly dollar amount since Q1 of 2008.

BUSINESS TIP OF THE WEEK… If you don’t need to be constantly on-call, don’t spend the first hour of the day checking emails. Instead, focus on getting one key thing done. And don’t worry – if people urgently need you, they’ll phone or text. 

>> Review of Last Week

TWO WEEKS DOWN, THREE MONTHS UP… Stocks again ended down for the week, but Friday’s 90-point run-up in the Dow gave us our third monthly gain in a row. The good vibes on Wall Street came from Fed Chairman Bernanke’s comments at Jackson Hole, Wyoming. He said the Fed will “provide additional policy accommodation as needed to promote a stronger economic recovery,” adding, “the stagnation of the labor market in particular is a grave concern.” Translation: they’ll print more money and hope for more jobs.

Economists are at odds as to whether the Fed’s policies will help. But stimulus measures could include buying more mortgage-backed securities. This would keep mortgage interest rates at extremely low levels. Earlier in the week, the Fed’s Beige Book suggested “economic activity continued to expand gradually in July and early August.” This snail’s pace expansion was confirmed by the economy’s measly 1.7% annual growth rate. August Consumer Confidence hit its lowest level in nine months, but Michigan Consumer Sentiment came in higher than expected. The beat goes on.

For the week, the Dow ended down 0.5%, to 13091; the S&P 500 was down 0.3%, to 1407; and the Nasdaq was down 0.1%, to 3067. 

Fed Chairman Bernanke’s Jackson Hole speech contained enough bond-friendly hints to keep prices moving higher. The FNMA 3.5% bond we watch ended the week UP .89 again, at $106.02. After edging higher the past few weeks, national average mortgage rates reversed course, scooting lower. Buyers aren’t missing this, as demand for purchase loans was up a seasonally adjusted 1% from the prior week.

DID YOU KNOW?… The most common secured bonds are mortgage bonds, backed by real estate or physical equipment that can be liquidated. They are considered high-grade, safe investments. Unsecured bonds carry greater risk, but usually pay higher yields.

>> This Week’s Forecast

MANUFACTURING, SERVICES, JOBS… Happy Labor Day! There are no economic reports scheduled on the holiday and markets are closed. Festivities begin tomorrow with the August ISM Manufacturing Index expected to climb back to 50. Below this number indicates contraction, above it expansion, so flat’s where we’re at. The August ISM Services Index on Thursday is forecast to show that sector just barely expanding. Oh well.

This first week back from the summer fun ends with our monthly reality check on jobs. The August Employment Report is projected to show only a modest gain in payrolls, not enough to budge the 8.3% unemployment rate.

>> 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 Sep 3 – Sep 7

 Date Time (ET) Release For Consensus Prior Impact
Sep 4
10:00 ISM Index Aug 50.0 49.8 HIGH
Sep 5
08:30 Productivity–Rev. Q2 1.8% 1.6% Moderate
Sep 6
08:30 Initial Unemployment Claims 09/01 375K 374K Moderate
Sep 6
08:30 Continuing Unemployment Claims 08/25 3.300M 3.316M Moderate
Sep 6
10:00 ISM Services Aug 52.2 52.6 Moderate
Sep 6
11:00 Crude Inventories 09/01 NA 3.778M Moderate
Sep 7
08:30 Average Workweek Aug 34.5 34.5 HIGH
Sep 7
08:30 Hourly Earnings Aug 0.2% 0.1% HIGH
Sep 7
08:30 Nonfarm Payrolls Aug 130K 163K HIGH
Sep 7
08:30 Unemployment Rate Aug 8.3% 8.3% HIGH


>> Federal Reserve Watch   

Forecasting Federal Reserve policy changes in coming months… With many economists expecting another round of quantitative easing come the next Fed meeting, the Funds Rate should stay where it is for quite some time. 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
Sep 13 0%–0.25%
Oct 24 0%–0.25%
Dec 12 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Sep 13      <1%
Oct 24      <1%
Dec 12      <1%