Keeping you updated
on the market!
For the week of
August 27, 2007

MARKET COMMENT

What a difference a week makes. In a mere seven days, capital markets went from desperate to, if not euphoric, then at least hopeful, thanks to a trinity of optimistic news.

First, the long-suffering mortgage market was given a pick-me-up by the surprise announcement that Bank of America had invested $2 billion in a Countrywide Financial preferred stock offering. The fine print in the transaction allows Bank of America to convert its investment into Countrywide common stock at $18 a share. If Bank of America were to convert at current prices, it would hold 17 percent of Countrywide's common shares, becoming the mortgage lender's largest shareholder.

More good news was forthcoming from the equally long-suffering residential real estate market, where new home sales unexpectedly increased 2.8% to an annual pace of 870,000 in July from a revised 846,000 rate in June. In addition, the median price of new homes rose 0.6% to $239,500 while inventories dropped to 7.5 months at the current sales pace.

Finally, mortgage rates (at least the prime variety) continued to trend lower, with the benchmark 30-year fixed-rate mortgage falling 10 basis points to average 6.52%, the 15-year fixed-rated mortgage dropping 12 basis points to average 6.18%, and the five-year hybrid adjustable rate mortgage easing one basis point to average 6.34%, according to Freddie Mac's weekly survey.

Existing Home Sales
(July)

Mon. Aug. 27,
10:00 am, et

5.76 Million (Annualized)

Consumer Confidence
(August)

Tues. Aug. 28,
10:00 am, et

106
Index

Federal Reserve FOMC Minutes

Tues. Aug. 28,
2:00 pm, et

None

Important. The minutes could influence interest rates if they reveal any unexpected opinions.

MBA Mortgage Applications

Wed. Aug. 29,
7:00 am, et

None

Gross Domestic Product
(2nd Quarter 2007)

Thurs. Aug. 30,
8:30 am, et

Personal Income
& Outlays
(July)

Fri. Aug. 31,
8:30 am, et

Income: 0.3% (Increase)
Outlays: 0.4% (Increase)

National Association of
Purchasing Managers (NAPM)
Chicago Survey
(August)

Fri. Aug. 31,
9:45 am, et

Factory Orders
(July)

Fri., Aug. 31,
10:00 am, et

BETTER DAYS AHEAD

It's difficult to say if the events of a fortnight ago signaled a market bottom, but with measures being implemented to mitigate any further damage, the odds increase that any relapse will be short lived.

On that front, the Federal Reserve has added over $40 billion to credit markets through purchases of various short-term credit instruments. It has also made it cheaper for banks to access funds through a reduction in the discount rate, the rate the Fed lends to banks. Meanwhile, FHA and Freddie Mac have gotten into the recovery act by introducing new programs that make it easier for subprime borrowers facing foreclosure to refinance.

This week, real estate and mortgage markets will be further bolstered if existing home sales and gross domestic product beat consensus estimates. Should that occur, the odds increase that the events of a fortnight ago signaled a market bottom.

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