For the week of November 2, 2009

INFO THAT HITS US WHERE WE LIVE

Last week September New Home Sales were reported down 3.6% for single-family units. But the supply of unsold new homes is just 7.5 months and inventories, at 251,000, are down 56.1% from their mid-2006 peak and at their lowest level since 1982. The sales drop followed five straight months of sales increases and some observers felt the decline may have come from more aggressive pricing by sellers, actually a bullish sign for the housing market.

Indeed, the median new home price was UP 2.5% for September, a bigger than usual gain for the time of year. The average price went UP 10.2%, the biggest September rise on record. Finally, the average price of new homes sold -- $282,600 -- was only 1.6% lower than last year. Speaking of prices, the Case-Shiller index reported home prices up in August for the fourth month in a row. The average of the 20 metro areas measured showed a 1.2% gain.

Finally, we had the good news covered in last week's Inside Lending Bulletin that the Senate passed an extension of the first-time homebuyer $8000 tax credit, with higher qualifying income limits and adding a $6500 credit to buyers who have owned their homes at least 5 years. Let's hope the House passes it too. Finally, the House and Senate extended the ability of Fannie Mae, Freddie Mac and the Federal Housing Administration to back conforming loans in high-cost areas, up to $729,750 through all of 2010. These higher limits would have expired at the end of this year.


Review of Last Week
CAUTIOUSLY RECOVERING... The government reported our first quarter of positive economic growth last week, indicating the recovery has begun. Yet investors kept the Dow moving up and down over 100 points four out of the five days, ending the week with a startling 249-point drop. Was this a bull market correction, or the return to a bear market? Who knows? The only thing certain is that investors aren't quite sure the economy is back on track.

Makes you wonder what it will take to convince them. The initial estimate for Q3 real GDP revealed the economy growing at a 3.5% annual rate -- way better than expected and the first rise in GDP in over a year. Happily, most of the advance was driven by consumption. Q3 GDP also showed home building UP at a 23.3% annual rate, its fastest rise since the '80's. Plus, Q3 corporate earnings reported so far show over 80% of the companies beating estimates, the highest rate in history.

On the jobs front, Initial Unemployment Claims dropped and the 4-week moving average hit a new low in the recovery of 526,000. Continuing Claims fell to 5.8 million. Positive news also included Durable Goods Orders UP for September, their fourth boost in six months. Most impressive of all, the Chicago PMI measuring Midwest manufacturing, shot up to its highest level in over a year. And the Richmond Fed index for Mid-Atlantic manufacturing logged its sixth straight month in expansion territory. All are favorable signs for U.S. manufacturing.

For the week, the Dow finished down 2.6%, to 9712.73; the S&P 500 was down 4.0%, to 1036.19; while the Nasdaq fell 5.1%, to 2045.11.

The bond market closed the week with a rally, helped in no small measure by the slide in stocks. The FNMA 30-year 4.5% bond we watch ended up from the previous week's close, finishing at $101.19. Mortgage rates inched up a bit but remain in historically low territory. For this year, the Freddie Mac survey of mortgage rates reported its lowest 10-month average going back to 1971.


This Week’s Forecast
FOCUS ON THE FED... Almost no one expects a rate change coming out of this week's Fed meeting, but economists will be looking at the Fed policy statement for any signs of when things may change. Other items of interest this week include Pending Home Sales on Monday and Friday's Employment Report, where we'll search for signs of a turnaround on the jobs front.


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.