Inside Lending Newsletter - For the week of December 12, 2011 – Vol. 9, Issue 50

QUOTE OF THE WEEK..."Be not afraid of going slowly; be only afraid of standing still."--Chinese Proverb INFO THAT HITS US WHERE WE LIVE...The housing recovery may be proceeding slowly, but things are definitely not at a standstill. Earlier this year, an industry rent vs. buy index found it is more affordable to buy than rent a two-bedroom home in 72% of America's 50 biggest cities. In fact, renting was less expensive than buying only in New York, Kansas City, San Francisco and Seattle. And in 10 of the cities where renting was relatively affordable versus ownership, people felt buying may still be a financially sound long-term decision. A recent consumer study showed people are getting the message. With home prices now at such affordable levels, 62% of those surveyed said buying in today's market is a good investment over the next 10 years. The most popular advice people would give to anyone thinking of purchasing a home is to avoid buying more house than they can afford. Good advice indeed. BUSINESS TIP OF THE WEEK...Most people don't base their buying decisions solely on logic. So if you're having trouble trying to change someone's mind, try instead to change their mood. >> Review of Last Week ANOTHER EUROPEAN TRIP...Investors again spent the week in Europe, at least as far as their mental focus was concerned. S&P put all 17 Euro nations on a ratings downgrade watch and the European Central Bank gave a cautious economic outlook. This bit of news sent stocks on an almost 200-point slide on Thursday. No matter. Last week's summit meeting of eurozone officials announced tighter fiscal controls and help from both the European Central Bank and the International Monetary Fund, so stocks shot back up and ended the week ahead in all three major indexes. Elsewhere, the economic data showed progress. China's sharp decline in inflation for November was encouraging. Over here, initial jobless claims surprised to the upside, coming in at 381,000, while continuing claims dropped to 3.583 million, the first time they've been that low in a while. The preliminary Michigan Consumer Sentiment Survey for December hit a six-month high, which bodes well for consumer spending.  For the week, the Dow ended UP 1.4%, at 12184; the S&P 500 moved UP 0.9%, to 1255; and the Nasdaq was UP 0.8%, to 2647. Friday's big day for stocks led to heavy selling in the bond market, as the news from Europe made investors way less risk averse. The FNMA 3.5% bond we watch ended the week down .75, at $101.31. National average mortgage rates on 30-year fixed-rate mortgages remained at record low levels for the sixth week in a row, as reported in Freddie Mac's weekly survey. DID YOU KNOW?... The European Central Bank, now much in the news, is the bank created to administer monetary policy for the countries which converted their currency to the Euro. >> This Week’s Forecast RETAIL, INFLATION, THE FED...There are no big housing reports this week. But there will be a few other economic topics worth noting. November Retail Sales on Tuesday are expected to remain in growth mode, encouraging evidence that consumers are still doing their best to support the recovery. Later that day, we'll hear from the Fed's last meeting of the year. They'll keep the Rate where it is, but their policy statement will be scrutinized as usual. The only thing that could shake our central bank from its low rate stance is a bump in inflation. But wholesale PPI inflation on Thursday and consumer CPI inflation on Friday are both expected to stay at benign levels. >> 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 Dec 12 – Dec 16  Date Time (ET) Release For Consensus Prior Impact Tu Dec 13 08:30 Retail Sales Nov 0.6% 0.5% HIGH Tu Dec 13 08:30 Retail Sales ex-auto Nov 0.5% 0.6% HIGH Tu Dec 13 10:00 Business Inventories Oct 0.9% 0.0% Moderate Tu Dec 14 14:15 FOMC Rate Decision 12/13 0%-0.25% 0%-0.25% HIGH W Dec 7 10:30 Crude Inventories 12/10 NA 1.336M Moderate Th Dec 15 08:30 Initial Unemployment Claims 12/10 390K 381K Moderate Th Dec 15 08:30 Continuing Unemployment Claims 12/3 3.625M 3.583M Moderate Th Dec 15 08:30 Producer Price Index (PPI) Nov 0.2% -0.3% Moderate Th Dec 15 08:30 Core PPI Nov 0.1% 0.0% Moderate Th Dec 15 08:30 NY Empire State Manufacturing Dec 3.0 0.61 Moderate Th Dec 15 09:15 Industrial Production Nov 0.2% 0.7% Moderate Th Dec 15 09:15 Capacity Utilization Nov 77.8% 77.8% Moderate Th Dec 15 10:00 Philadelphia Fed Manufacturing Dec 4.3 3.60 HIGH F Dec 16 08:30 Consumer Price Index (CPI) Nov 0.1% -0.1% HIGH F Dec 16 08:30 Core CPI Nov 0.1% 0.1% HIGH >> Federal Reserve Watch    Forecasting Federal Reserve policy changes in coming months...This week, the Fed's last meeting of the year is not expected to result in any change in the Fed Funds Rate. Economists feel this situation will remain for some time. 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% After FOMC meeting on: Consensus Dec 13 0%–0.25% Jan 25 0%–0.25% Mar 13 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Dec 13      <1% Jan 25      <1% Mar 13      <1%

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