Inside Lending Newsletter March 11

March 11, 2013 – Vol. 11, Issue 10

>> Market Update

>QUOTE OF THE WEEK… “If I had permitted my failures…to
discourage me, I cannot see any way in which I would ever have made
progress.”–Calvin Coolidge, 30th U.S. President

INFO THAT HITS US WHERE WE LIVE… Those of us who haven’t been
discouraged by the housing market these past few years, can now see the
progress we helped to achieve. Last week, more good
news came regarding home prices.

Aleading data aggregator reported national home prices were UP 9.7% in
January versus a year ago, the biggest annual increase since April 2006.
And the 0.7% monthly advance they posted was their 11th in a row. Many
observers feel these
price gains will likely boost home sales during the first half of the
year.

In addition, asking prices of homes listed for sale on a major online real estate portal were up compared
to a year ago in 90 of the top 100 U.S. metros. The asking price gains
for February were the largest since the recession began, UP 1.4% for
the month and UP 7% versus a year ago.
Their chief economist commented,
“…buyers face a dilemma between buying now before prices rise even more, or later this year,
when they’ll have more inventory to chose from.”

BUSINESS TIP OF THE WEEK…Think about what works well in your business, then focus on ways to improve
it. It’s easier to make changes to something that’s functioning well,
and making a good thing better can really pay off.
Review of Last Week.

SETTING RECORDS… Starting Tuesday, the Dow
set new record highs four days in a row, blasting past the peak it
reached in 2007, well before the recession. Even the broadly
based P 500 index ended the week just 14 points away from its all-time
record high. What made investors feel so optimistic were some decent
corporate earnings, better economic data, and the growing recognition that the
government spending cuts known as the sequester probably wouldn’t have
that much of an economic
impact once they started to kick in.

ISM Services bested expectations, at 56.0, showing solid expansion in the sector where over
80% of our jobs are found. Those jobs are now being created at a healthier pace, with 236,000 nonfarm payrolls added during February, enough to push the unemployment rate down to 7.7%, its lowest
level in four years. The release of the Fed’s Beige Book of economic observations from
around the country concluded that the U.S. economy is now expanding at a “modest
to moderate pace.”

The week ended with the Dow up 2.2%, to 14397; the
P 500 up 2.2%, to 1551; and the Nasdaq up 2.4%, to 3244.

The upbeat economic data that sent stocks skyward slammed bonds pretty hard. The
FNMA 3.5% bond we watch ended the week down .94, at $104.31. Freddie Mac’s Primary
Mortgage Market Survey had average fixed mortgage rates mostly holding
steady from the week prior. Their chief economist feels, “…these
low mortgage rates are helping to revive the housing market.” Underlining that
point, mortgage applications were up 14.8% over the week before,
according to the Mortgage Bankers
Association.

DID YOU KNOW?… Inflation is the
upward movement of prices, measured by gauges like the CPI and PPI. As prices rise,
the dollar’s value falls because it doesn’t buy as much. Inflation
has ranged from near zero to 23% the last 50 years, but the Fed’s goal
is 2%-3%.

This Week’s Forecast

CONSUMERS GAINING, BUT SO IS INFLATION…This week we check up on consumers
and forecasts show them increasing their contribution to the
recovery. February Retail Sales are expected up by a larger amount than January,
both with and without auto sales in the mix. Michigan Consumer
Sentiment is also predicted to continue its upward trajectory.
Remember, consumer spending makes up 70% of the economy.

But inflation appears to be gaining too. The PPI Producer Price Index, which measures what businesses pay for
things, is forecast up a bit much for February, although Core PPI is still OK. It’s the same story for the
prices we pay, a little high as measured by the CPI Consumer Price Index, but Core CPI, which excludes food and energy, remains 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 Mar 11-Mar 15

Federal
Reserve Watch

Forecasting Federal Reserve
policy changes in coming months…With inflation within
Fed guidelines, according to the Fed’s favorite measures, the
Funds Rate should stay super low well into the future.

Note:In the lower chart, a 1% probability of change is a 99% certainty the rate will stay
the same.

Current Fed Funds Rate: -0.25%

Probability of change from current policy:

UIE