Prime Lending Newsletter Nov 19

Nov 19, 2012 – Vol. 10, Issue 47

>> Market Update

QUOTE OF THE WEEK… “Opportunities multiply as they are seized.”–Sun Tzu, ancient Chinese military general, thought to be the author of The Art of War

INFO THAT HITS US WHERE WE LIVE… Investors are seizing the opportunity to invest in Home Depot, the home improvement retailer who’s seizing the opportunities presented by this still young housing recovery. Home Depot just posted adjusted Q3 earnings of 74 cents a share, up 23% from a year ago, evidence there’s a growing number of homeowners sinking money into their properties. Other facts back this up. The U.S. homeowner vacancy rate fell to 1.9% in Q3, a seven-year low. Many feel this signals that the economy has worked off most of the excess housing that had been built.

This better balance in the housing market is boosting home prices and builder confidence. Housing starts are up, as well as construction jobs, following a four-year slump. No wonder investors are bidding up stocks throughout the home improvement sector, including Masco, Whirlpool, Sherwin-Williams, and Home Depot’s competitor Lowe’s. Finally, Realtor.com reports October inventory at 1.76 million units, down 17% from a year ago and 40% below the September 2007 peak. In uncertain times, there’s no place like home.

BUSINESS TIP OF THE WEEK… When you truly believe in your idea, your company, or yourself, then you don’t need to “sell.” You just need to communicate.

>> Review of Last Week

DOWN TIME… Stocks headed down again, the Dow posting its fourth consecutive week of negative performance. Observers think investors are turning this down time in the markets into professional downtime, taking their money off the table as they wait for Washington to come to grips with the so-called fiscal cliff. These are the mandatory tax hikes and spending cuts that kick in January 1 unless politicians reach a deal to cut the 1.3 trillion dollar deficit some other way. The only “up” feeling came from a better than expected New York Empire Manufacturing number and the installation of new Chinese leadership, who should spike their economic growth.

The rest of the economic data disappointed. On the manufacturing front, both the Philadelphia Fed index and October Industrial Production were off the mark and there was a large hike in both initial and continuing unemployment claims. October PPI producer prices were down a little and CPI consumer prices were up only 0.1%, so inflation appears to be under control. But October Retail Sales were down 0.3%.Many felt it was just superstorm Sandy temporarily impacting all the numbers.

For the week, the Dow ended down 1.8%, to 12588; the S&P 500 was down 1.4%, to1360; and the Nasdaq was down 1.8%, to 2853.

With the damage to stocks, traders expected big advances in bonds. But treasuries ended the week with only small gains and trade overall was flat. The FNMA 3.5% bond we watch ended the week off .05, at $106.17. As Washington heads toward the fiscal cliff, investors see a safe haven in mortgage bonds, pushing rates down. National average rates for 30-year fixed rate mortgages hit a new low in Freddie Mac records dating to 1971.The Mortgage Bankers Association reported purchase loan applications UP 11% for the week and UP 22% over a year ago.

DID YOU KNOW?… Sarah Josepha Hale, a magazine editor, persuaded Abraham Lincoln to declare Thanksgiving a national holiday in 1863. She also wrote the nursery rhyme “Mary Had a Little Lamb.”

>> This Week’s Forecast

EXISTING HOMES, HOUSING STARTS, ECONOMIC INDICATORS, TURKEY!… It’s a short week of economic reports, just three days of data. Monday’s Existing Home Sales for October are forecast to be off a little, just like Tuesday’s Housing Starts and Building Permits for October. Wednesday’s Leading Economic Indicators (LEI) indexand Michigan Consumer Sentiment are also expected to be down a bit.

The stock market is closed Thursday for the holiday and will close early at 1 p.m. on Friday. Happy Thanksgiving to you and yours!

>> 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 Nov 19 – Nov 23

>> Federal
Reserve Watch   

Forecasting Federal Reserve
policy changes in coming months… Last week’s release of Fed
meeting minutes revealed they could replace their timeframe for low
rates with data targets, but nothing’s happened yet. 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