Inside Lending Newsletter Dec 10

Dec 10, 2012 – Vol. 10, Issue 50

>> Market Update

QUOTE OF THE WEEK… “Our greatest glory is not in never falling, but in rising every time we fall.”–Confucius

INFO THAT HITS US WHERE WE LIVE… What are rising now are asking prices for homes. A major Web real estate portal reports prices for homes listed there were up 3.8% in November versus a year ago. This is the largest year-over-year gain since the housing downturn began. In addition, the listing prices for the three months ending in November were up 0.8% from the prior three months. And the good news was widespread: annual gains were reported in 76 of the 100 largest metros. Finally, asking price gains are now beating rent price gains in the 25 largest rental markets.

The Wall Street Journal reports five factors influencing rising home prices: housing affordability, with price-to-rent and price-to-income ratios favoring home ownership in many markets; increased household formation; rising rents; a decrease in distressed sales; and record low inventories. The Fed’s recent Beige Book reported improving markets for single-family homes in 10 of the 12 Federal Reserve districts across the country. But one of the two exceptions still showed declining inventories and the other had been hurt by Hurricane Sandy.

BUSINESS TIP OF THE WEEK… Sitting too long at a computer dulls your mental sharpness. Take a break every hour or so and be active: take a 10-minute walk, do a few sets of push-ups or sit-ups.
>> Review of Last Week

PARACHUTES, ANYONE?… It’s hard for investors to get enthusiastic about buying stocks as they wait for the politicians to agree on how to save us from going over the fiscal cliff on January 1. Maybe Washington will just issue everyone parachutes to soften the landing. The political deadlock, along with good and bad economic data, left the Dow up a tad for the week, the S&P 500 virtually flat, and the tech-heavy Nasdaq off just a bit. The week began disappointingly, with the ISM Manufacturing index dipping below 50 for November, indicating contraction.

But, hey, the November ISM Services index rose nicely to a 54.7 growth reading and Q3 Productivity was up at a 2.9% annual rate. Best of all, Friday’s November employment report delivered a better than expected 146,000 new jobs and a drop to 7.7% in the unemployment rate. Unfortunately, the prior reading was revised down from 171,000 to 138,000 new jobs. Another negative was the big drop from 82.7 to 74.5 in University of Michigan Consumer Sentiment.

For the week, the Dow ended up 1.0%, to 13155; the S&P 500 was up 0.1%, to 1418; and the Nasdaq was down 1.1%, to 2978.

Mixed economic reports plus the fiscal cliff stalemate contributed to little price movement in bonds. The FNMA 3.5% bond we watch ended the week down .01, at $106.23. National average fixed mortgage rates stayed at or near record lows as the Fed continued its program to buy $40 billion a month of mortgage bonds to keep prices up and rates down. The Mortgage Bankers Association reported demand for purchase loans even for the week.

DID YOU KNOW?… Bush Tax Cuts refers to the reduced income and long-term capital gains taxes, marriage penalty reduction, expansion of the child tax credit, and lowered maximum gift and estate tax exemptions enacted under President George W. Bush.
>> This Week’s Forecast

THE FED, THE CONSUMER, THE INFLATION… The Fed meets Wednesday for the last time this year. Coming out of the FOMC meeting no one expects any change in the Funds Rate, but the Policy Statement will be studied for its view of the economy. Chairman Bernanke’s press conference follows the meeting.

Important news about the consumer’s role in the recovery comes Thursday. Overall November Retail Sales are expected back in growth territory from last month’s dip. But Retail Sales excluding autos are predicted to be flat. Wholesale PPI and consumer CPI inflation numbers are forecast to stay within Fed guidelines.
>> 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 Dec 10 – Dec 14

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… This Wednesday we’ll see if the Fed says anything different about keeping the Funds Rate at super low levels “at least through 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:

UIE