For the week of October 26, 2009

INFO THAT HITS US WHERE WE LIVE

The week ended with the terrific news that Existing Home Sales shot UP 9.4% in September to a 5.57 million annual rate. This was almost twice the increase the consensus expected and a nice boost coming off the slight drop we saw in August. Best of all, the inventory is now down to a 7.8 month supply, getting us closer and closer to the 6-month level of a normal housing market.

Earlier in the week, Housing Starts for September were UP 0.5% to an annual rate of 590,000 units. The consensus expected more, but the drag on the number all came from a drop in those volatile multi-unit starts. Single-family starts were up a strong 3.9%, their sixth gain in the last seven months and UP 40.3% since the January-February bottom. The rate of building is well below underlying demand, which some put at about 1.6 million units per year, based on population growth and the need for replacement because of fires, disasters and knock-downs.

The Mortgage Bankers Association reported that for 30-year fixed-rate mortgages, the average contract interest rate was 5.07% with 1.13 points (including the origination fee) for 80% loan-to-value ratio loans to borrowers with good credit. First time buyers have just five weeks to get in on these still great rates AND the $8,000 tax credit set to go away at the end of November.


Review of Last Week
CAN'T STAY ABOVE 10,000... It was a strange week in the stock markets, as the Dow shot past the "magic" 10,000 mark two days in a row, but a freaky Friday hammered that benchmark back down below 10,000. All three major indexes saw modest drops for the week. Some analysts said the seven-month rise in stock prices made us ready for a dive. Even analysts who are bullish long-term hinted we were due for a temporary pullback. We can be grateful these experts' wishes were fulfilled in such a modest way.

The negative yak was extra strange because Q3 corporate earnings continued to impress investors. We saw what some called "blowout results" from Apple and Amazon.com, while a long list of companies had very nice upside surprises -- outfits like American Express, AT&T, Capital One, Caterpillar, McDonald's, Texas Instruments, UPS and Yahoo! And let's not forget the strong single-family Housing Starts and very strong Existing Home Sales that show the housing recovery is moving along.

Initial Unemployment Claims inched up a bit last week, but Continuing Claims continue to fall, now down to 5.9 million. Gloomy pundits say this just shows people's unemployment benefits are expiring, but a few folks surely must be getting jobs to support the now recovering and growing economy! These pundits might want to consider Treasury Secretary Tim Geithner's prediction that we'll see "...positive growth in 2010 at a level that will begin to gradually bring down the unemployment rate."

For the week, the Dow ended down 0.2%, to 9972.18; the S&P 500 was down 0.7%, to 1079.60; while the Nasdaq fell just 0.1%, to 2154.47.

It was an up-and-down week in the bond market, which ultimately ended down. Friday, investors were anticipating this week's record auctions, which could squeeze prices some more. The FNMA 30-year 4.5% bond we watch fell again from the previous week's close, ending at $100.59. Still, mortgage rates stay in historically low territory.


This Week’s Forecast
HOUSING? GDP? INFLATION?... We'll have new answers to all three questions, beginning Wednesday with New Home Sales, then Thursday we get our initial look at GDP for Q3, the first quarter that's expected to show the economy expanding again. Friday we get numbers for PCE and Core PCE, which are the Fed's favorite inflation indicators.


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.