Texas Mortgage Market Update – For the week of October 22, 2012

>> Texas Mortgage Market Update

QUOTE OF THE WEEK… “Now and then it’s good to pause in our pursuit of happiness and just be happy.” –Guillaume Apollinaire, French writer, poet, and critic

INFO THAT HITS US WHERE WE LIVE… If Apollinaire were alive today (he died in 1918), he might suggest we pause now and be happy, given that September Housing Starts were up 15% (11% for single-family starts) to an 872,000 annual rate. From a year ago, starts are up 34.8%, as builders are starting homes at the fastest pace since July 2008. Building permits for future construction were up 11.6% in September to an 894,000 annual rate. The total number of homes under construction is up 21% over a year ago, gaining 13 months in a row, which hasn’t happened since the building boom of 2003–2004.

No wonder the NAHB index of builder confidence went to 41, its highest level since mid-2006. But until the index goes above 50, builders who say they’re confident remain in the minority. Lest the rest of us get too confident, September Existing Home Sales dipped 1.7% to 4.75 million units annually, while the median price fell a bit. Yet sales are up 11% and prices are up 11.3% from a year ago. The inventory of existing homes dropped to its lowest level since March 2005 with the months’ supply at 5.9. Experts feel the housing market is at the start of a slow recovery.

BUSINESS TIP OF THE WEEK… Communicate with stories as often as you can. People connect through emotions and energy, not facts and figures. Remember the fun stories of your life and share them with others.

>> Review of Last Week

TWO OUT OF THREE GO UP… The Dow and S&P 500 were up marginally after five sessions while the tech-heavy Nasdaq thudded down, as the first busy week of Q3 earnings season saw results from 117 companies down about 4.0% year over year. Even worse, most companies missed on sales revenues, with only 38% beating estimates. These reports did not foster a feeling of economic confidence among investors. And the big market decline on Friday coincided with the 25th anniversary of the worst single-day stock drop in history, when the Dow lost 23% of its value on October 19, 1987.

But all was not gloomy. The consumer showed signs of life in September, pushing retail sales up 1.1%. Industrial production and factory capacity were also up a tad. However, CPI inflation was up as well, thanks to the hike in gas prices we all know about. The Fed, though, prefers the Core CPI reading, which ignores food and energy prices (because of their volatility!) and that was up only 0.1%. Finally, initial weekly jobless claims, which dropped unexpectedly the week before, were back up to 388,000, which most analysts feel is closer to reality.

For the week, the Dow ended up a mere 0.1%, to 13344; the S&P 500 was up 0.3%, to 1433; and the Nasdaq was down 1.3%, to 3006.

In bonds, Treasuries stopped their 5-day losing streak Friday, as soft corporate earnings inspired a flight to safety. Still, there was enough positive news, like China’s in-line GDP, to produce some selling. The FNMA 3.5% bond we watch ended the week down .11 to $106.08. National average mortgage rates stayed at or near record lows, as investors, led by the Fed, kept buying mortgage backed securities. Demand for purchase loans was at its highest level since June, up 1% for the week and up 12% from a year ago.

DID YOU KNOW?… Treasuries, Treasury Bills, and T-Bills all refer to the same thing, a negotiable debt obligation issued and backed by the U.S. government. They’re considered the safest securities available to the U.S. investor.

>> This Week’s Forecast

MORE HOME SALES, GDP, AND, YES, ANOTHER FED CONFAB… Housing market news continues with September New Home Sales on Wednesday forecast up slightly, to a 385,000 unit annual rate, still modest but heading in the correct direction. Thursday’s September Pending Home Sales measures contracts signed on existing homes, indicating actual sales a few months out. It’s expected up from the prior month’s down reading.

Friday’s Advanced Q3 GDP should show the economy still plowing along well below the growth rate experts say we need for a healthy jobs market. The FOMC Rate Decision comes Wednesday with the Fed’s take on the economy revealed in their heavily scrutinized policy statement.

>> 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.

Economic Calendar for the Week of Oct 22 – Oct 26

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… Don’t expect the Fed to touch the Funds Rate at this week’s meeting. They recently said they want to keep it at rock bottom until mid-2015. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

Probability of change from current policy: