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>> Market Update
INFO THAT HITS US WHERE WE LIVE Housing starts for new single-family homes and apartments continued their steady rise, up 1.5% for August, their strongest pace in nine months. This puts housing starts at a seasonally adjusted annual rate of 598,000, their highest level since November of last year. This sign of steady improvement in home building made economists even more confident Q3 growth will be positive, signaling the recession is over.
Mortgage rates continue to remain at three-month lows. Freddie Mac's weekly Primary Mortgage Market Survey showed average long-term mortgage rates down for the third week in a row! The 30-year fixed rate mortgage is just above 5% with an average 0.7 point (including the origination fee). And the average rate for 15-year fixed rate mortgages hit a new record low in the Survey. These rates are for prime borrowers with an 80% or lower loan-to-value ratio on loans eligible for purchase by Freddie Mac.
Finally, please remember the $8,000 tax credit for first-time homebuyers is set to expire in just over two months. Those eligible need to close by November 30!
>> Review of Last Week
HAPPY DAYS ARE NEAR AGAIN... The stock markets continued their upward moves last week, posting gains in four of five sessions and for the week overall. The big news of the week was Fed chief Ben Bernanke announcing, "From a technical perspective, the recession is very likely over." This was followed by billionaire Warren Buffet effectively calling the recession's end, commenting that the economy has "sort of plateaued at the bottom right now." The world's most successful investor added: "I think we're certainly... through the worst of it in residential real estate in all probability."
In addition to these positive pronouncements, investors had some solid economic developments to ponder. Tuesday we had August Retail Sales shooting up 2.7%, easily beating expectations. Excluding the auto sales boost from the government's Cash for Clunkers program, we still had a 1.1% hike for the rest of retail. Retail in fact is up at a 14.3% annual rate over the last three months and up 5.1% if you take out auto sales.
Initial claims for unemployment fell again last week, this time by 12,000, to 545,000. The four-week average of continuing claims dropped too. Meanwhile, the Philadelphia Fed Index, which gauges manufacturing in that region, shot up to +14.1 in September from 4.2 in August. This harmonized nicely with Industrial Production now up two months in a row, at a 10.4% annual rate.
For the week, the Dow ended UP 2.2%, at 9820.20; the S&P 500 shot UP 2.5%, to 1068.30; while the Nasdaq also pushed UP 2.5%, to 2132.86.
Bond prices declined in thin trading, with the market anticipating the record supply that will be on tap at next week's Treasury auctions. The FNMA 30-year 4.5% bond we watch finished down from the previous week's $100.78 close, settling at $100.44. Nonetheless, mortgage rates inched down a bit more, continuing at their historically low levels.
>> This Week's Forecast
THE FED AND HOUSING WEIGH IN... The Fed meets this week and although there's no drama around whether they'll raise the rate (they won't), there's will be more than the usual interest in their FOMC statement, coming out Wednesday at 2:15. That's all because of Fed chief Bernanke's recession-ending comments last week. More key housing data comes with the Federal Housing Finance Agency's July Housing Price Index Tuesday, then August Existing Home Sales Thursday and New Home Sales Friday.
>> 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 September 21 - September 25
| Date |
Time (ET) |
Release |
For |
Consensus |
Prior |
Impact |
M
Sep 21 |
10:00 |
Leading Economic Indicators Index (LEI) |
Aug |
0.7% |
0.6% |
Moderate |
Tu
Sep 22 |
10:00 |
FHFA Housing Price Index |
Jul |
0.5% |
0.5% |
Moderate |
W
Sep 23 |
10:30 |
Crude Inventories |
9/18 |
NA |
-4.73M |
Moderate |
W
Sep 23 |
14:15 |
FOMC Rate Decision |
Sep |
0%-0.25% |
0%-0.25% |
HIGH |
Th
Sep 24 |
08:30 |
Initial Jobless Claims |
9/19 |
550K |
545K |
Moderate |
Th
Sep 24 |
10:00 |
Existing Home Sales |
Aug |
5.35M |
5.24M |
Moderate |
F
Sep 25 |
08:30 |
Durable Goods Orders |
Aug |
0.3% |
5.1% |
Moderate |
F
Sep 25 |
09:55 |
Univ of Michigan Consumer Sentiment-Rev |
Sep |
70.5 |
70.2 |
Moderate |
F
Sep 25 |
10:00 |
New Home Sales |
Aug |
440K |
433K |
Moderate |
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months. Last week, we saw the Consumer and Producer Price Indexes inching up, but no one's worried about inflation just yet. So almost all economists feel the Fed will hold the funds rate down to make sure the recovery takes hold. 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%
| After FOMC meeting on: |
Consensus |
| Sep 23 |
0%-0.25% |
| Nov 4 |
0%-0.25% |
Probability of change from current policy:
| After FOMC meeting on: |
Consensus |
| Sep 23 |
1% |
| Nov 4 |
2% |
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