For the week of September 13, 2010

For the week of September 13, 2010

INFO THAT HITS US WHERE WE LIVE

Market Update

Last week included a few interesting takes on where things are at in the housing market. We first got the news that purchase mortgage applications last week were at their highest level since May, UP 6.3% over the week before. It's nice to see buying interest starting to rebound after the tax credit expiration. But we do have a bit of a way to go, as last week's number was still 38.8% below where it was a year ago, according to the Mortgage Bankers Association.

One source of new buyers for sure is the huge number of people for whom homes are now way more affordable. For families making the national median income, the share of homes they can afford stayed above 70% for the sixth quarter in a row as tracked by the Housing Opportunity Index (HOI). The National Association of Home Builders, which co-sponsors the HOI, said this affordability was the result of low home prices and favorable mortgage rates. The NAHB chairman commented, "Homeownership is within reach of more households than it has been for almost a generation...with house prices starting to stabilize, conditions are beginning to draw homebuyers back into the market..."

Review of Last Week

SQUEAKING UP... We had just four days of trading last week for investors to show us how they feel about the economic prospects going forward. Coming back from Labor Day, stocks sank on Tuesday, with the Dow 147 points down. But during the next three days, traders slowly pushed prices back up enough that all three major stock indexes squeaked into positive territory for the second week in a row. And the Dow remains UP for the year.

It was an unusually quiet week for economic news but, as usual, both positive and negative information competed for our attention. Wednesday, the Fed released its latest Beige Book containing economic views from the 12 regional Federal Reserve Banks. They noted continued growth but with widespread signs of a deceleration. Hiring is being held down by the availability of part time workers, home sales have slowed since the tax credit, and manufacturing is expanding at a slower pace. But commercial real estate shows signs of stabilizing, consumer spending is up despite cautious attitudes, and travel and tourism are up.

Thursday's news included a $7 billion drop in the trade deficit for July, the rest of the world buying $2.8 billion more U.S. goods and services than they did in June. New weekly unemployment claims continue to drop, by 27,000, to 451,000. This is still not a great number but at least it's trending in the right direction. Most experts feel that the employment situation is closely tied to the health of the housing market.

For the week, the Dow ended UP 0.1%, to 10462.77; the S&P 500 was UP 0.5%, to 1109.55; and the Nasdaq was UP 0.4%, to 2242.48.

The bond market had an up-and-down time of it over the four days, finishing off at the lows. The FNMA 30-year 4.0% bond we watch ended down 23 basis points for the week, closing at $102.04. Freddie Mac's weekly survey showed national average mortgage rates still historically low, but leveling out. Three out of four mortgage types they track were flat or increased slightly over the prior week.

This Week’s Forecast

THE BIG ECONOMIC PICTURE (ALMOST)... We get lots of economic news this week, the sole exception being any reports on our beloved housing market. There's Retail Sales on Tuesday, expected to still be up, though at a slower pace. Wednesday has manufacturing, which continues its slow but steady recovery, as measured by the Empire State Index, Industrial Production, and Capacity Utilization. We get wholesale inflation with the Producer Price Index and inflation for the rest of us with the Consumer Price Index, both of which should show prices under control and deflation not a threat. We end with University of Michigan Consumer Sentiment, expected to reveal a lessening of fear over a double-dip recession.

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.

Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months Last week's Fed Beige Book didn't alter the opinions of any economists, who overwhelmingly believe the Fed will keep rates low well into next year. A boost in inflation or the recovery could change things of course. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

All "Betts" on Brian! The Only Realtor you want!