Weekly Market Update

Keeping you updated on the market!
For the week of

December 13, 2010

MARKET RECAP

This past week was a slow news week. The occasional lull is a good thing: it offers the opportunity to engage in a little introspection. On that front, we became a little more introspective when we stumbled across a Forbes article titled “ America 's Most Stable Housing Markets.”

The article wasn't particularly revealing, though it did confirm much of what we already expected: The most stable markets were ones that avoided the gold-rush mentality; were mostly in smaller, out-of-the-way burgs – Gaithersburg, Md. and Brookline, Mass., for example; were mid- to higher-priced abodes; and were hardly impacted by the homebuyers federal tax credit. The fact that there are more of these areas than the national media reports was the positive takeaway.

Stability on the mortgage-rate front is another matter. We suspected that the Federal Reserve's decision to up the money supply would increase rate volatility, and that's been the case. What's more, not only has rate pricing been more volatile, rates have been on the rise. In fact, rates are back to where they were in early summer.

We think that higher rates are here to stay. The Fed desires inflation in order to bump the stock market higher, which the Fed hopes will make consumers and businesses feel wealthier, and, thus, loosen their purse strings. Meanwhile, many economists expect the extension of the Bush-era tax-rate cuts to boost US economic growth by as much as one percentage point next year.

Most important (and most encouraging), employment will likely pick up in the coming months. A Manpower survey found that more employers plan to take on new staff in the first quarter of 2011, while fewer are planning any staffing cuts.

All this bullish economic news points to higher interest rates. But as we've stated in the past, that's not bad news, because higher interest rates are indicative of an improving economy, which will encourage more private investors to return to the mortgage market.

The problem is, too many borrowers have become anchored to where rates were six weeks ago and insist on waiting for a return to those rates. The best advice we can offer at this point is to take advantage of opportunistic dips, but even that's no sure thing. Nevertheless, let's remember that rates are still very favorable when viewed from a historical perspective, so there is no use fretting over what could have been. On the contrary, the more we fret today, the more we will regret later.

Economic
Indicator

Release
Date and Time

Consensus
Estimate

Analysis

Producer Price Index
(November)

Tues., Dec. 14,
8:30 am, et

All Goods: 0.5% (Increase)
Core: 0.2% (Increase)

Important. Price inflation is growing on the producer front.

Retail Sales
(November)

Tues., Dec. 14,
8:30 am, et

0.6%
(Increase)

Important. The rising sales trend reflects increasing consumer confidence.

Federal Reserve FOMC Meeting

Tues., Dec. 14,
2:15 pm, et

Federal
Funds Rate:
0% to 0.25%

Important. Odds are increasing that the Fed could raise the fed funds rate.

Mortgage Applications

Wed., Dec. 15,
7:00 am, et

None

Important. The purchase index hit a seven-month high, portending improved home sales numbers.

Consumer
Price Index
(November)

Wed., Dec. 15,
8:30 am, et

All Goods: 0.2% (Increase)
Core: 0.1% (Increase)

Important. Consumer-price inflation remains subdued, but that will change as the economy improves.

Housing
Market Index
(December)

Wed., Dec. 15,
10:00 am, et

16 Index

Important. Traffic concerns continue to weigh on homebuilder sentiment.

Housing Starts
(November)

Thurs., Dec. 16,
8:30 am, et

555,000 (Annualized)

Important. Expect a pick up in starts, though the market remains soft.

Leading Indicators
(November)

Fri., Dec. 17,
10:00 am, et

0.4%
(Increase)

Moderately Important. The indicators suggest an improved economic outlook.

Time to Renew Our Faith

We are not speaking of religious or spiritual faith; that's a given this time of year. We are speaking of faith in our businesses. Here's why: A survey conducted by Trulia and RealtyTrac revealed that 48 percent of potential home buyers have lost faith in the mortgage industry, while 58 percent don't think the housing market will recover until after 2012, with 22 percent not expecting better days until 2015.

It's an unfortunate perception for a number of reasons: First of all, markets can't be managed. Markets are processes, not places, and they can be made more efficient by predictable, generalized rules, but they can't be perfected. On the mortgage end, many of the rules the industry follows are in fact government mandated, so our hands are tied.

Human nature is a problem in gauging the worthiness of any broad-based survey: The respondents lack the facts and tend to fixate on the immediate past and then extrapolate that past far into the future; hence, the response that one-in-five don't see a housing recovery for another five years. That said, today's housing and lending environments provide an opportunity to build faith and educate clients on economic realities, such as if you wait for market perfection or for the rock-bottom mortgage rate, you'll be waiting in perpetuity while opportunity passes by.