For the week of October 19, 2009

INFO THAT HITS US WHERE WE LIVE

For the third week in a row, rates on 30-year fixed-rate mortgages remained below 5% in Freddie Mac's Primary Mortgage Market Survey. The average for conforming mortgages was 4.92% with an average of 0.7 point (including the origination fee) for 80% loan-to-value ratio loans to borrowers with good credit.

The Mortgage Bankers Association reported applications down 1.8% for the week, although re-financings were up, as more people took advantage of historically low mortgage rates. The MBA also projected double-digit growth for home sales next year. They see 2010 existing home sales up 11.2% to 5.57 million and new home sales up a healthy 21% from 2009 levels. Another encouraging stat came from the National Association of Realtors which reported 3.6 million existing homes for sale at the end of August, nicely down from 4.3 million 12 months ago.

First time buyers may still be able to get the $8,000 tax credit expiring at the end of November. That's six weeks away, which is not a lot of time, but not impossible. Fence-sitters should get pre-qualified now.


Review of Last Week
FLIRTING WITH 10,000... Investors focused on corporate earnings saw enough encouraging signs to push the Dow past 10,000 on Wednesday. It was last at that magical mark on October 7 a year ago. The market closed above 10,000 again on Thursday, but Friday was a different story. GE and IBM reported quarterly results that were less than expected and University of Michigan Consumer Sentiment fell 3.9 points, after a 7.8 point rise in September, so the week ended below 10,000, but still with an overall gain.

But don't fret over consumers -- they're clearly showing up at the stores. Retail sales for September fell just 1.5%, way less than expected after the end of the Cash for Clunkers program. In fact, "core" retail sales (take out autos, building materials and gas) were UP 0.5% and are UP three of the last four months. Ignore the pundits -- consumers ARE participating in this recovery. Other good indicators included the Empire State Manufacturing Index rising to its highest level in over five years and initial unemployment claims falling to 514,000, their lowest level since the start of the year.

But the best news for investors was on the earnings front, with JPMorgan Chase, Goldman Sachs and Citigroup all beating estimates. Tech darling Google blew everyone away with earnings of almost $6 a share and an optimistic economic outlook. The week ended with Treasury Secretary Tim Geithner telling CNBC: "... you're going to see the economy growing at a significant rate...the rest of this year. [And] Positive growth in 2010 at a level that will begin to gradually bring down the unemployment rate."

For the week, the Dow ended UP 1.3%, to 9995.91; the S&P 500 was UP 1.5%, to 1087.68; while the Nasdaq rose 0.8%, to 2156.60.

The bond market saw prices under pressure in the shortened week. This included the FNMA 30-year 4.5% bond we watch, which dropped a tad from the previous week's $100.91 close, ending at $100.72. But, as reported above, mortgage rates stayed low, keeping us in "the golden age of mortgage rates", as one observer described it.


This Week’s Forecast
HOME SWEET HOMES... This week is full of news on the subject we love most. Tuesday we get Housing Starts and Building Permits for September, Friday delivers Existing Home Sales. For a gauge of the broader economy, the PPI looks at producer prices, while the LEI consolidates a group of indicators. We will all keep watching Initial and Continuing Unemployment numbers as we wait for Secretary Geithner's prediction to come true.

Corporate earnings will stay big in the picture as 12 companies who are part of the Dow Jones Industrial Average share Q3 results.


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.