Market Update! For the week of September 30, 2013

Keeping you updated on the market! For the week of  September 30, 2013

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MARKET RECAP Lower Mortgage Rates Prevail Mortgage rates can be as difficult to forecast as the flight path of a butterfly, but forecast we do. Last week, we said we expected to see the 30-year fixed-rate mortgage fall after the Federal Reserve announced there would be no tapering of quantitative easing. Our forecast was for the rate on the 30-year loan to fall below 4.5%, and possibly trade in the 4.25%-to-4.5% range for the near future. It looks like we got it right. Bankrate.com's latest survey shows the 30-year loan averaged 4.47% nationally. Of course, some local markets didn't see quite that much reduction, while others saw more. But all in all, we are seeing rates lower than we've seen in the past four months. We expect the 30-year loan to hold near today's levels. The fact is that economic growth remains sluggish. The latest and final revision of 2 nd quarter gross domestic product (GDP) shows less growth than expected. The consensus estimate was for GDP to grow at a 2.7% annualized rate, but the final number shows a 2.48% growth rate. Sluggish GDP growth gives the Federal Reserve reason and room to continue buying $40 billion worth of mortgage-backed securities (MBS) each month. In addition, concerns over a looming federal government shutdown, due to political wrangling over the debt ceiling, will keep interest in Treasury notes and bonds high. Investors are also pondering what impact the Affordable Healthcare Act (Obamacare) will have on businesses when it's implemented next month. In short, there's a lot of uncertainty that will keep investors interested in haven securities like Treasury notes and bonds and MBS. Their interest should help hold mortgage rates at these lower levels. To be sure, we see little impetuous for mortgage rates to move much high. But keep an eye on next Friday's employment report. Should that come in stronger than expected, rates could temporarily spike. On the flip side, if the employment report comes in weaker than expected, rates will move lower. The past couple employment reports have disappointed, so it's likely most economists have proffered less-optimistic predictions. Our crystal ball points to job growth meeting or slightly exceeding exceptions. In that case, we could see an uptick in mortgage rates at the end of the week. But with all the other uncertainties baked into the credit markets, we doubt rates would move meaningfully higher. So we see an extended opportunity to take advantage of lower rates. Keep in mind, though, the long-term bias – an eventual tapering and higher inflation – points to higher mortgage rates down the road. The risk, as we've said so often, remains in procrastinating.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Construction Spending (August)	Tues., Oct. 1, 10:00 am, ET	0.6% (Increase)	Important. Gains in residential spending slowed in recent months, but commercial spending is moving higher.
Mortgage Applications	Wed., Oct. 2, 7:00 am, ET	None	Important. Purchase applications jumped to their highest level since July, which points to strength in underlying home sales.
Factory Orders (August)	Thurs., Oct. 3, 10:00 am, ET	0.3% (Increase)	Moderately Important. Orders remain subdued, thus reflecting sluggish economic growth.
Unemployment Situation (September)	Fri., Oct. 4, 8:30 am, ET	Unemployment Rate: 7.3% Payrolls: 180,000 (Increase)	Very Important. Another month of sluggish job growth and low-employment participation ensures continued quantitative easing.

Laws of Economics Still Work Higher prices bring in more supply; more supply leads to lower prices. This is how things are shaping up in the new-home market. Sales jumped 7.9% to an annual rate of 421,000 units in August. The number of new homes for sale rose 6,000 for the month. Supply stands at five months, a considerable improvement over the 4.6-month supply that prevailed a year ago. More supply – more new homes – means pricing pressure. The median new home price slipped 0.7% to $254,600 in August, marking the fourth-consecutive monthly decline. This follows the news on existing-home sales, which showed a slight downtick in the median price to $212,100. Over the past couple months, we've been warning that price appreciation will likely slow. The latest data from the S&P/Case-Shiller Home Price Index support our contention. Case-Shiller's 20-city index shows price growth slowed to 0.6% in July, down from 0.9% in the prior two months. Trends don't last in perpetuity, so a slowdown in price-appreciation was (is) inevitable. Because trends don't last in perpetuity, we pounded the table hard in 2010 and 2011 for buyers to get in the game. We were adamant back then because we expected the downward price trend to soon reverse course, which it did. We expect price-appreciation growth to continue to slow. More supply will come to market, because more sellers will see slowing price growth and will want to capture gains. In turn, their actions will further slow price-appreciation growth. That said, if anyone is waiting for slow-to-no price growth, he or she needs to keep in mind that any money saved on a purchase price could easily be offset by higher financing costs.