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Weekly Market Update

By
Mortgage and Lending with Peoples Home Loans NMLS 13530

 

 

Keeping you updated on the market!
For the week of

October 25, 2010


MARKET RECAP

We can't say that the post-tax credit lull is officially over, but recent housing data lead us to believe it is. Housing starts again surprised on the upside, increasing 0.3 percent in September to 610,000 seasonally adjusted annual units, after jumping 10.5 percent in August. More importantly, single-family starts were noticeably stronger, increasing 4.4 percent month-to-month.

Gains in the immediate future might be tougher to come by. Permits declined 5.6 percent, lead by an acute decline in the multi-family segment, which tumbled 20.2 percent after a 9.8 percent rise in August. The bad news on multi-family permits – which tend to be volatile anyway – is offset somewhat by the good news that single-family permits edged up 0.5 percent.

Improving sales and more construction helped lift the Housing Market Index – a gauge of homebuilder sentiment – to a 16 reading in October after posting at 13 in September. Although the sentiment is still low, it should continue to improve: the HMI component for sales expected in the next six months rose to 23 from September's 18.

We don't want to minimize legitimate concerns, but the tendency is to extrapolate near-term news farther into the future than it probably deserves. Admittedly, news has been underwhelming due to tax-credit expirations, sluggish job growth, shadow inventory build up and foreclosure-gate, but these things can pass as quickly as they come. Indeed, we are already seeing reports that last week's fears of a country-wide foreclosure meltdown were seriously overdone.

In the meantime, mortgage rates remain stable (which also means they show little inclination to go lower), as do home prices, so it's important to keep the long term in perspective. Few people doubt that there's a high probability that a refinance or a home purchase today will look like a very savvy investment five years hence.

 

Economic
Indicator

Release
Date and Time

Consensus
Estimate

Analysis

Existing
Home Sales
(September)

Mon., Oct. 25,
10:00 am, et

4.3 Million (Annualized)

Important. The healing process should continue as long as foreclosure issues remain manageable.

S&P/Case-Shiller Home Price Index
(August)

Tues., Oct. 26,
9:00 am, et

2.7% (Increase)

Important. Prices continue to improve, suggesting the days of price deflation are over.

Consumer Confidence
(October)

Tues., Oct. 26,
10:00 am, et

49.5 Index

Moderately Important. Only an improving job market can sustain consumer confidence.

Mortgage Applications

Wed., Oct. 27,
7:00 am, et

None

Important. Activity should strengthen as foreclosure-servicing concerns abate.

Durable Goods Orders
(September)

Wed., Oct. 27,
8:30 am, et

1%
(Increase)

Important. The smoothed trend shows strong business investment.

New Home Sales
(September)

Wed., Oct. 27,
10:30 am, et

300,000 (Annualized)

Important. Improving sentiment suggests sales gains in coming months.

Gross Domestic Product
(3rd Quarter 2010)

Fri., Oct. 29,
8:30 am, et

2% (Annualized Growth)

Important. Financial markets expect the recovery to broaden into more segments of the economy.

Employment
Cost Index
(3rd Quarter 2010)

Fri., Oct. 29,
8:30 am, et

0.5% (Annualized)

Important. New regulations and mandates could raise costs and slow employer hiring.

 

Another Reason We Think Home Prices Have Bottomed

Last week we discussed quantitative easing and the prospect of the Federal Reserve injecting more money into the banking system. The scuttlebutt on the street says the Fed could pump another trillion dollars into the system through Treasury-bond purchases. It's no slam-dunk, though; the money supply is already at an all-time high, according to the St. Louis Bank of the Federal Reserve.

Because of heightened uncertainty, new money has had only a minor impact on consumer prices. In other words, consumer-price inflation remains low (though prices haven't been falling either). Much of the inflation associated with the new money has shown up in the investment markets instead, particularly in stock and gold prices.

We think it's only a matter of time before consumer prices come under inflationary pressure. The fact is that even if the Federal Reserve doesn't add more money to the system, the banks could. They are sitting on $980 billion of excess reserves, which could easily be drawn into the loan markets, thus further expanding the money supply.

All this money and the potential for even more money will help keep home prices stable in nominal terms. And it's these nominal values that serve as the basis for home appraisals and loan amounts. In other words, if the Fed's goal were to maintain a median home price of $200,000, it could theoretically pump enough money into the economy to make it happen. It wouldn't necessarily be a good idea, but it is an option if price stability were the goal.

 

Posted by

Michael Dutra

Regional Sales Manager

Peoples Home Loans

Phone: (508) 372-9176

Cell: (401) 486-6894

Email: Mike@TeamDutra.com

Website: www.TeamDutra.com 

 

Lending in ALL 50 States

 

NMLS 13530

Comments (2)

Carol West
Carol West Real Estate, LLC - Hillsboro, OR
Real Estate Agent, Hillsboro, Beaverton, Portland

Michael, 

Thanks for your update on the financial landscape. 

Oct 24, 2010 01:16 PM
John Lake
Shamrock Home Loans - Mashpee, MA
Sarasota and Cape Cod Mortgage Ba

Michael,

 Now that we are coming to the end of the year I think the market has had a lot to digest. 2011 should see an increase in sale and hopefully values.

Oct 31, 2010 02:49 AM