Inside Lending Newsletter – Feb 4, 2013

Feb 4, 2013 – Vol. 11, Issue 5

>> Market Update

>> Market Update

QUOTE OF THE WEEK… “The ladder of success is best climbed by stepping on the rungs of opportunity.” –Ayn Rand, Russian-American novelist, philosopher, and playwright

INFO THAT HITS US WHERE WE LIVE… For quite some time, borrowers have had the opportunity to take advantage of very low mortgage rates. But opportunities don’t last forever. For the first time in many months, rates have recently moved up. We don’t know if this is a trend or not, but it may be worth your while to let your borrowers know that record lows don’t last forever.

In other housing news, December Pending Home Sales, which gauge contracts on existing homes, were off 4.3% for the month. This is not surprising for the time of year, but it does presage a small dip in the sales of existing homes in the next month or two. We also had a dip in home prices from October to November in half the markets tracked by the S&P/Case-Shiller 20-City Composite home price index.Nevertheless, 19 of the 20 metros tracked showed annual price gains, up 5.5% over last year.

BUSINESS TIP OF THE WEEK… Effective communication with clients and prospects is key to success. Hold off on the content and focus first on making a personal connection. Clients need to know you truly care about them.

>> Review of Last Week

HELLO, 14,000… Capping off a nice start to the year, stocks registered a fifth week of gains that took the Dow Jones Industrial Average north of 14,000 for the first time since the fall of 2007. The broadly-based S&P 500 index wasn’t too shabby either, ending the week above 1500. Investors appear to be upbeat on the economy even though the signals remain mixed. A prime example was the January Employment Report, with a lower than expected number of new jobs created, but solid upward revisions made to December and November.

Nonetheless, the unemployment rate drifted back up again, to 7.9%.  Mixed messages continued, with Durable Goods orders, the Chicago PMI manufacturing index, and Michigan Consumer Sentiment all nicely beating expectations. Yet the Consumer Confidence reading missed expectations by a lot and the Advanced GDP estimate for Q4 showed economic growth diminishing at a –0.1% annual rate. This was the first time GDP went negative since 2009, but it didn’t seem to bother investors one bit.

The week ended with the Dow UP 0.8%, to 14010; the S&P 500 UP 0.7%, to 1513; and the Nasdaq UP 0.9%, to 3179.

With stocks heading higher, investors moved out of bonds, sending prices lower and yields and mortgage rates up. The FNMA 3.5% bond we watch ended the week down .06, at $105.12. Freddie Mac’s Weekly Survey showed national average mortgage rates continuing to edge higher, although still in very attractive territory. The Mortgage Bankers Association reported purchase loan applications up 6.2% from the week before, increasing for the fifth week in a row and now almost 10% above where they were last year.

DID YOU KNOW?… GDP, or Gross Domestic Product, is the total market value of all goods and services produced in a country. The U.S. GDP annual growth rate has averaged 2.5%–3%, but with major deviations.

>> This Week’s Forecast

SERVICES SECTOR, PRODUCTIVITY AND TRADE… Following last week’s avalanche of economic data, we now have only a brief flurry of reports. But we do want to pay attention to the January ISM Services index, as that sector provides well over 80% of our jobs. The index is expected to remain above 50, showing expansion.

The Preliminary  Q4 Productivity reading is forecast to dip into negative territory. Finally, the December Trade Balance is predicted at –$45.4 billion, indicating our exports still have a long way to go to balance our purchases of foreign-made goods.

>> 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 Feb 4 – Feb 8

>> Federal
Reserve Watch   

Forecasting Federal Reserve policy changes in coming months… Last week’s FOMC Meeting did nothing to dispel the feeling among economists that The Fed will continue to keep the Funds Rate super low for the time being. 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