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Posted by: Bruce & Sandy Soli | December 28, 2009

Economic Update By Steve Peterson

The economy continues to offer up generally good news–better home sales, strong housing starts, etc. This, though, takes interest rates higher. At the same time, though, we are watching the unfolding of a potential credit crisis in several European countries that could upset the international currency markets, among other things, and lend support to U.S. Treasury auctions and to the value of gold.

This is a bit eerie and should be watched closely.

But we can raise a glass of egg nog to the improving economic indicators we’re seeing. Real estate sales should continue in the coming few months as people awaken to the need to act on the attractive tax credit offers and to the fact that prices are just now starting to firm in certain housing markets (notably starter homes) and mortgage interest rates are threatening to say good-bye to the 4% level.

I wish you a wonderful 2010, full of rewards for the work you’ve done in 2009!

 Steve Peterson

Branch Manager

Sierra Pacific Mortgage

Office: 888-232-7687

Cell: 775-219-7151

Fax: 866-649-3235

 December 22, 2009


 Gold $1085.30/ounce [down]

Crude Oil (Brent) $73.41/brl [up]

U.S. Dollar to…

    Euro .7015 [up]

    Japanese Yen 91.83 [up]

6-mo Treasury Bill Yield 0.17%

10-yr Treasury Note Yield 3.74%

[6-mo up unchanged, 10-yr up 13 bps]

11th Dist Cost of Funds 1.259%[-]

30-yr Fixed-rate Mortgage 5.40%

15-yr Fixed-rate Mortgage 4.83%

1-yr ARM 4.85%  [HSH averages rates: 30-yr up 10 bps,15-yr up 9 bps; 1-yr ARM up 49 bps]

Mortgage Bankers Association Mortgage Applications Index

week ending 12/11  Overall 667.3 (up 0.3%; up 8.5% the week prior)

  Purchase Money Loans 241.2 (down 0.1%; up 4.1% the week prior)

  Refinancing Loans  3214.0 (up 0.9%; up 11.1% the week prior)

Jobless Claims 12/12  480,000 – prior week 474,000 – continuing claims rose to 5.186 m

Housing Starts Nov Up 8.9% – SFRs up 2.1%

Existing Home Sales Nov Up 7.4%

Conference Board Leading Indicators Nov Up 0.9% – 8th consecutive mo.

Weekly Commentary

“It is pretty obvious that the worst for the housing market has passed. Home sales are holding steady and starts have stabilized, albeit at a very low level. Nevertheless, the housing market will not fully stabilize until the second half of 2010, when house prices cease falling.” [Michael Zoller, Moody’s Economy.com]

The numbers to the left are very attractive, with new housing starts, existing home sales and the Leading Indicators Index all up significantly. The Consumer Price Index, meantime, rose by 0.4% in November, causing Inflation Hawks to worry aloud—though there is little current concern about rising inflation.

Looking the improving landscape over, it is pleasantly easy to agree with Michael Zoller (above) and to pronounce the recession a thing of the past—at least in the housing zone. However, we still have a big backlog of potential foreclosures to worry about, not to mention the question of how sustainable the recovery really is. It is good that mortgage applications are holding up, for example, but perhaps the extension of the $8,000 tax credit for “first-time” buyers and the addition of a $6,500 credit for “move-up” buyers should have caused the demand for purchase money mortgages to rise.

A counter-balancing force, however, has appeared: The dollar’s exchange value is showing unexpectedly strong resilience, inspired in part by the weakness of the currencies in debt-laden countries like Greece, Portugal, Ireland, Spain and, of course, Dubai. With so many national credit crises apparently in the making, the dollar once again looks like a safe haven.

At the same time, however, Treasury security rates have been rising gradually over the past few weeks, taking mortgage rates with them. This slows the demand for refinancing mortgages and saps a bit of the strength from the purchase money applications as well.

The most obvious force affecting Treasury rates, though, is exemplified by the good news to the left. So long as the economy appears to be improving in a meaningful way—and fears of a return of recessionary forces are fading—the good news drives interest rates higher.

But don’t forget: We are in the unpredictable last weeks of the year, when tax sales and other maneuvers that are unrelated to the actual condition of the markets push the indices up and down, and we are wise not to base any but the most tenuous forecasts on what we see. (Meantime…Happy Holidays!)

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