Week of April 18, 2011 Quote of the week... "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."--Winston Churchill INFO THAT HITS US WHERE WE LIVEOptimists received some encouragement from data aggregator CoreLogic, who reported that home prices fell again in February, but the price drops appeared mostly with distressed sales--short sales and bank-owned homes, otherwise known as REO properties. Excluding these, the CoreLogic index was essentially flat, down just 0.1% versus a year ago. Their Chief Economist commented, "When you remove distressed properties from the equation, we're seeing a significantly reduced pace of depreciation and greater stability in many markets." During the month, 6 out of 10 of the country's biggest markets saw home price APPRECIATION in non-distressed sales.
The Mortgage Bankers Association (MBA) predicts rates on 30-year fixed-rate mortgages could rise a bit in the second half of this year. They see this gradual rise in mortgage rates continuing, even if the Federal Funds rate does not increase for another six to 12 months, as many economists expect. That's because both the Treasury Department and the Fed announced last month they would start selling their huge portfolios of mortgage-backed securities. Some analysts believe these moves will raise rates.
BUSINESS TIP OF THE WEEK...Two of the most powerful words in business are "thank you." Let your customers and employees know how much you appreciate them. Say "thank you" often. Even better, write them a note--not an email, text or Tweet, but an old-fashioned, hand-written, personal note! Review of Last WeekSLOPING SIDEWAYS...Stocks were down for the week, but only slightly, falling sideways, if you will. This seemed to stem from general investor unease over the U.S. budget deficit, the European debt crisis and a mixed reaction to Q1 corporate earnings. Alcoa beat estimates, but revenues were off. JPMorgan Chase topped expectations, but Bank of America missed. Even Google was punished for higher operating costs, while reporting in-line earnings and better than expected revenue. Yet, the 33 S&P 500 companies reporting so far had 7.3% higher sales and 38% better earnings than a year ago.
In other news, Retail Sales were on a roll in March, up 0.4% overall and up 0.8% taking out autos. That's annual sales growth of almost 10%, so the consumer is clearly helping out. On the inflation front, the PPI showed prices for producers continued up in March, though less than anticipated. And these increases were NOT getting passed on to the consumer, since the Core CPI showed prices up just 1.2% from a year ago. However, most economists expect inflation to go up, and with that comes higher interest rates, so home buyers and refinancers should not be too complacent about today's low rates.
For the week, the Dow ended down 0.3%, at 12,342; the S&P 500 was off 0.6%, to 1,320; and the Nasdaq was also off 0.6%, ending at 2,765.
There were some solid gains in the bond market, supported by the better than expected inflation readings. There was also some safe-haven bond buying coming off European concerns, after Moody's downgraded Ireland's debt. The price of the FNMA 4.0% bond we watch ended the week up .96, closing at $98.15. In spite of this, national average rates for conforming mortgages edged up in Freddie Mac's weekly survey. But rates remain historically low, "helping to maintain affordability in the housing market," according to Freddie Mac's Chief Economist.
DID YOU KNOW?...The Census Bureau reports the median size for a new home dropped to 2,135 square feet in 2009, down from its peak of 2,300 square feet earlier in the decade. The typical owner-occupied home has three bedrooms and two baths. This Week’s ForecastHOMES STARTED, HOMES PERMITTED, HOMES SOLD...This week looks at a good part of the housing market. March Housing Starts on Tuesday are expected to be up nicely, the same as Building Permits, which show planned starts a month or two out. Wednesday's Existing Home Sales should report the annual rate back at 5 million, definitely a good thing.
Other data includes the Philadelphia Fed Index of manufacturing activity in that region, forecast down some for April. We'll also look at the overall recovery with March Leading Economic Indicators, predicted up by a small amount. On Good Friday, the markets will be closed and there are no economic reports. The Week’s Economic Indicator Calendar
Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months...Last week's benign inflation readings mean the Fed can hold onto its rock bottom rates a while longer. Economists expect this to be the situation in the near term. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Week of April 11, 2011 Quote of the week... "Whether you think you can or think you can't--you are right." - Henry Ford INFO THAT HITS US WHERE WE LIVE
Those of us who think we can participate in a housing market recovery sooner rather than later just got welcome support from some industry experts. As reported by Fortune on CNNMoney.com, "After four years of plunging home prices, the most attractive asset class in America is housing." Research firm Metrostudy, which tracks new-home inventories for 65% of the U.S. market, reports that the steep drop in construction over the last few years has reversed the supply glut, with starts now well below closings. The firm believes the low inventory should eventually lead to higher prices.
The Fortune posting also cited a new study from a major bank that found homeowners now pay only 9.8% of their income in after-tax mortgage, tax and insurance payments, down from 17.2% at the 2007 peak. This means it's now cheaper to pay a mortgage and the other major homeowner costs than it is to rent the same house in 28 out of 54 major markets.
Fortune further reports that where existing home inventories average close to seven months, a modest boost in demand will result in solid gains in home prices and new construction. This could happen quickly in markets now showing good job growth. Moody's Analytics forecasts prices going up three to four points faster than inflation over the next few years in virtually all such markets. They see home prices rising with rents, with apartments in short supply. Of course, the housing recovery still requires job creation and consumer confidence back to normal, but we finally seem headed in that direction.
BUSINESS TIP OF THE WEEK...Avoid the hard sell--a soft sell approach is actually far more effective. Satisfy your customers' needs and wants. Discover their pain points and be their problem solver. Do what really is best for your customer and see your reputation and business grow. Review of Last WeekWALL STREET FLAT, WASHINGTON STAYS OPEN...Our representatives in Washington waited until the last minute to agree on budget cuts and avoid the first Federal government shutdown in 15 years. The media had a field day, but investors largely ignored it, understanding that the last thing any government wants to do is put a stop to its own operations. But there was enough other bothersome news--rising gold and oil prices, a declining dollar and a rate hike by the European Central Bank--to leave the Dow flat and the other two major stock indexes off a tick for the week.
But the ISM Non-Manufacturing index, which dipped slightly in March, still shows the services sector above 50 and growing. In fact, this index has been in that territory now for 16 straight months! It was also encouraging that initial weekly jobless claims dropped again, staying well below 400,000, which economists say stabilizes the unemployment rate, now under 9%, two months in a row. The minutes from the Fed's March 15 meeting reported "the pace of economic activity...a little slower," but "the labor market continued to show signs of firming," which is key to the housing recovery. For the week, the Dow ended flat, at 12,380; the S&P 500 was off 0.3%, to 1,328; and the Nasdaq was also off 0.3%, ending at 2,780. There wasn't much economic or auction news to bolster the bond market. Not even Portugal's bailout request could motivate a flight to safety to help bond prices. Consequently, the FNMA 4.0% bond we watch ended the week down .91, closing at $97.19. Reflecting this, national average rates for conforming mortgages drifted up in Freddie Mac's weekly survey, but rates are still historically low. Even better, demand for purchase loans hit its highest level of the year at the end of March. DID YOU KNOW?...The Commerce Department reported the average price of a new home sold in December was the highest it's been since July 2008--$291,400. This Week’s ForecastHOW MUCH ARE WE BUYING, WHAT ARE WE PAYING AND HOW'S BUSINESS?... Wednesday's March Retail Sales are expected to show we consumers continue to buy more. We're also paying more, as the Consumer Price Index (CPI) is forecast up a tad. But Core CPI is what the Fed focuses on, which excludes volatile food and energy prices. Some economists think food and energy hikes are exactly why the Fed should begin raising rates. Wholesale inflation is also moving up, measured by the Producer Price Index (PPI), and some experts say businesses will eventually pass these higher prices on to the consumer. Yet Michigan Consumer Sentiment is predicted to remain fairly positive. How business is doing will be reflected in the Trade Balance, expected to show a $45 billion export-import gap, and the Empire State Manufacturing Index, forecast to report continued growth in the New York region. So the recovery inches up, a good thing for all. The Week’s Economic Indicator CalendarWeaker 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 April 11 – April 15
Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months...Friday, Dallas Fed President Richard Fisher said the Fed is close to the point at which it has to start reversing its "accommodative" monetary policy (i.e., raise the Funds rate). But economists still don't expect that until much later in the year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. 
Week of April 4, 2011 Quote of the week... "Adopt the pace of nature: her secret is patience." - Ralph Waldo Emerson INFO THAT HITS US WHERE WE LIVE
Patience has certainly been needed to weather the ups and downs of the current U.S. housing market. But as we await strong recovery, we can take heart in positive signs when they show up. Last week we had the report that Pending Home Sales were up 2.1% in February. This measure of contracts on existing homes indicates sales should rebound in March following February's drop.
Other tidbits of goodness included the news that the share of home buyers for second homes held steady in 2010 versus the year before. But this report from the National Association of Realtors (NAR) did show overall sales volume somewhat declining. Meanwhile, the reverse of that is occurring on the luxury end of the market, where sales of homes priced at $1 million and above were up 3.9% in February versus a year ago.
Those market observers who seem dying to report a double dip in housing prices loved last week's S&P/Case-Shiller Home Price Indices, which were down for January. But the 10-city composite Case-Shiller home price index is still 2.8% above and the 20-city is still 1.1% above their April 2009 lows. Seems the critics could do with a little patience too.
BUSINESS TIP OF THE WEEK... Attitude is everything. Be a fanatic optimist. Consistently see the glass half full. A great attitude affects all those around you--and always wins in the end.
Review of Last WeekJOBS SURPRISE... It was a good week for investors who were encouraged by positive economic news, capped on Friday with a surprisingly upbeat March Employment Report. All three major stock market indexes were up again for the week, which began with signs the consumer's purchasing power is growing. For February, Personal Income and Personal Spending were both UP, while inflation, as measured by Core PCE Prices, was up only 0.2% for the month and 0.9% since last year. This is well within the Fed's target range.
The highlight of the week was the aforementioned March Employment Report. Nonfarm payrolls were UP 216,000, with the private sector contributing 230,000 jobs, well above expectations. Best of all, job growth was broadly based, with strong gains in several business sectors. The unemployment rate dropped again and is now at 8.8%. The festivities ended with ISM Manufacturing down a tick for March but, at 61.2, well into expansion territory above 50.
For the week, the Dow ended up 1.3%, to 12,377; the S&P 500 was up 1.4%, to 1,332; and the Nasdaq was up 1.7%, ending at 2,790.
The bond market was hurt by the renewed interest in stocks and the better than anticipated jobs report. The FNMA 4.0% bond we watch was off .02 for the week, closing at $98.10. National average rates for conforming mortgages edged up a bit according to Freddie Mac's weekly survey, but they're still at historically low levels.
DID YOU KNOW?... ISM reports come from the Institute for Supply Management. Last week's ISM Manufacturing is considered by many economists to be the most reliable near-term economic barometer for that sector. This week's ISM Non-Manufacturing provides insight into the Services sector, representing over 80% of GDP.
This Week’s ForecastTAKING A BREATHER... After the recent avalanche of economic news, this week could be seen as a welcome respite. Tuesday's ISM Non-Manufacturing index for March is expected to hold steady, reflecting the slow pace of the economic recovery. But the reading above 50 puts services solidly in expansion mode, which is key, since 85% of our jobs are in this sector of the economy.
We also get FOMC Minutes from the Fed's meeting on March 15. Economists will be looking for signs of how soon the Fed may start pushing rates back up.
The Week’s Economic Indicator CalendarWeaker 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 April 4 – April 8 Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months...More economists are talking about the need for the Fed to tighten monetary policy by edging rates up. But few expect a hike in the funds rate until well into the second half, or even next year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. 
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