February 21st, 2010 9:40 PM by Lehel S.
Keeping you updated on the market! For the week of
February 22, 2010
MARKET RECAPThere is something about the calendar flip from December 31 to January 1 that imbues a “clean slate and a new start” mentality. For some ingrained psychological reason, a new year tends to rejuvenate optimism, even though it only represents a completed lap around the sun.That said, we'll take optimism when we can get it. And no group is more primed for a shot of feel-good than homebuilders. More of them are starting to see the glass as half full, at least according to the NAHB housing market index, which rose two points to 17 this month after scraping bottom in December.Fortunately, the latest numbers support the growing optimism. Housing starts increased 2.8% in January compared to December, posting at a seasonally adjusted annual rate of 591,000 units. We'll acknowledge that the extension of the federal homebuyers’ tax credit helped, but we'll also acknowledge continued low lending rates, renewed economic growth, and an improving employment outlook did their part.
Better pricing helped as well. Radar Logic's monthly Residential Property Index (RPX), a composite of 25 major US markets, increased 0.2% from November 17 to December 17, marking the first November-to-December increase since 2004. The increase might not sound like much, but it comes on top of a 1.5% increase from the October-to-November period.We shouldn't see any backsliding either. Looking farther afield, First American CoreLogic projects prices will increase 2.7% by year's end, and if distressed sales are excluded, will increase 3.5%.Meanwhile, mortgage rates continue to hold near record lows, at least according to surveys taken before the Federal Reserve announced it will raise the discount rate – the rate it lends to member banks – to 0.75%. Does this mean that mortgage rates will start rising? We can't say for sure, but we wouldn't discount it. .
Economic IndicatorRelease Date and TimeConsensus EstimateAnalysisS&P Case/Shiller Home Price Index(December)Tues, Feb. 23,9:00 am, etNone Important. Weak December sales could produce a temporary backslide in pricing gains. Consumer Confidence(February)Tues, Feb. 23,10:00 am, et56 IndexModerately Important. A firming job market is boosting confidence. Mortgage Applications Wed, Feb. 24,7:00 am, etNone Important. Purchases are expected to be a greater driver of activity. New Home Sales(January)Wed, Feb. 24,10:00 am, et360,000 (Annualized) Important. Record-low inventory should stimulate monthly increases. Durable Goods Orders(January)Thurs, Feb. 25,8:30 am, et1.5% (Increase) Important. Increasing orders suggest consumers are growing bullish on the economy. Gross Domestic Product(4th quarter 2009) Fri, Feb. 26,8:30 am, et5.5% (Annualized) Important. This second estimate buttresses the argument for a strong 2010. Existing Home Sales(January)Fri, Feb. 26,10:00 am, et5.5 Million (Annualized) Important. Sales should improve moderately after December's drop.
What's Up with the Discount Rate? Opinions are as diverse as the number of opinion makers: Some think the Federal Reserve's move on the discount rate will have little impact on long-term lending rates, some think it means we're headed toward higher rates, some think it portends an improving economy, and everyone else falls somewhere in between.The diversity of opinion is understandable. When banks borrow from the Fed, they are bringing new money into the system. By raising the discount rate, the Fed is limiting new money, so you could say it's a preemptive move against inflation. On the other hand, the Fed is still pledging to keep interest rates at exceptionally low levels, all the while focusing on removing excess liquidity.Then again, it might not be a preemptive move at all. Government officials are much more reactionary than they are anticipatory. There is a valid concern that by the time the Fed's comfortable boosting interest rates, too much money will have made its way into circulation, which means the Fed could find itself behind the curve, having to chase down inflation with onerous interest-rate increases.It's possible the Fed could be chasing already. Last week's news on prices was mixed: Producer prices rose much more than expected, while consumer prices fell slightly more than expected. As the economy improves, though, higher producer prices will eventually get pushed through to consumers. We think the economy is improving, so we think last week's discount rate increase is a prelude of things to come.In the meantime, take advantage of stable low home prices and low mortgage rates today. It might also be worthwhile to take advantage of refinancing opportunities, particularly for anyone holding an ARM that's within a percentage point of current fixed rates. Yes, there is a cost associated with forfeiting the savings a lower-rate ARM offers, but that cost might be offset by the security of not having to refinance in a rising interest-rate environment.