Week of September 14, 2009

INFO THAT HITS US WHERE WE LIVE

Last week mortgage applications surged 17%, according to the Mortgage Bankers Association. And it wasn't just re-financings taking advantage of the latest dip in our already low interest rates. Applications for purchase loans were up a very healthy 9.5% from the week before. According to the MBA, the average contract interest rate for a 30-year fixed-rate mortgage was down to just over 5%, with average points inching up to 1.23 (including the origination fee) for 80% loan-to-value mortgages. These rates are of course for prime borrowers with 20% downpayment.

Freddie Mac's weekly survey of conforming mortgages showed rates dropping to similar levels, which is very nice considering a 30-year fixed-rate conforming mortgage averaged 6.35% just a year ago. The benefit to the real estate market is clear. As Freddie Mac chief economist Frank Nothaft put it, "Low mortgage rates are helping to keep housing very affordable." First-time homebuyers enjoy even more affordability, thanks to the $8,000 tax credit, but be sure to remind them they need to close by November 30!

Prices may even be stabilizing. The listing and valuation site Zillow.com reported buyers are getting smaller discounts off seller's listing prices. July purchasers paid just 3.3% below list price vs. an average of 3.5% for June and 4.6% back in January.


Review of Last Week
SHORT WEEK HITS NEW HEIGHTS...There were just four trading days last week, but the stock market made gains on three of them, sending the Dow to a fresh high for the year. The S&P 500 and Nasdaq indexes were also UP for the week, as investors seemed ready to accept more risk in what increasingly appears to be a recovering economy.

But all is not well just yet, as the Fed's Beige Book on Wednesday alleged that employment, consumer spending and construction remain weak. This of course justifies the Fed keeping the funds rate low. But the Beige Book did note the rate of economic decline is slowing and manufacturing shows improvement, as reported here last week. The Trade Balance offered an interesting mixed message. The trade deficit expanded the most in a year. Economists say this shows trade won't add as much to Q3 GDP growth as it has in the past. On the other hand, exports and the overall volume of international trade are up now three months in a row. This revival in exports, some economists feel, signals the US economy is in recovery.

Initial claims for unemployment dropped 26,000 for the week, to 550,000, the second lowest level in the recovery. Continuing unemployment claims dropped by 159,000 to 6.09 million, the lowest level in five months. Both FedEx and Texas Instruments raised their earnings outlooks for the current quarter. Treasury Secretary Geithner told Congress to remove bank bailout money from his budget! And Friday saw the University of Michigan's Consumer Sentiment Index registering a way-higher-than-expected 70.2.

For the week, the Dow ended UP 1.7%, to 9605.41; the S&P 500 shot UP 2.6%, to 1042.73; while the Nasdaq pushed UP 3.1%, to 2080.90.

The bond market held up for the week, with the auctions that went on helping to support prices. The FNMA 30-year 4.5% bond we watch finished up from the previous week's $100.50 close, ending at $100.78. As mentioned above, mortgage rates dipped a trifle more, to near historic levels.


This Week’s Forecast
BUYING AND BUILDING... On the buy side, we'll have August Retail Sales telling us how the all-important consumer is aiding the economic recovery. The August Consumer Price Index (CPI) will show if inflation is hurting that consumer's buying power. Building will be measured on Thursday with August Housing Starts and Building Permits revealed to all