Inside Lending Newsletter - For the week of January 16, 2012 – Vol. 10, Issue 3

>> Market Update  QUOTE OF THE WEEK..."If you have to forecast, forecast often."--Edgar R. Fiedler INFO THAT HITS US WHERE WE LIVE...Economist Fiedler, Assistant Treasury Secretary under Presidents Nixon and Ford, knew that wise forecasters give themselves lots of opportunities for revisions. This time of year, the focus is on forecasts and even though many will soon be revised, some are worth considering. The chairman of the Fisher Center for Real Estate at the University of California, Berkeley, feels home prices have bottomed and are increasing, though not rebounding, where there's strong job growth. But other economists anticipate a 5% decline in home prices over the next two years. Several industry watchers expect mortgage rates to stay low in 2012, especially the first half of the year. But buyers and those looking to refinance shouldn't drag their feet. Freddie Mac's chief economist expects rates to rise at least somewhat during the second half of the year. Fannie Mae's chief economist thinks rates will stay flat most of the year, but may go up a tick the last quarter. And he's hopeful lenders will work with more buyers with good credit scores.  BUSINESS TIP OF THE WEEK...Don't fall victim to "analysis paralysis," putting off a decision until you've evaluated every possible option. Successful people just focus on the critical details, then act. >> Review of Last Week SOMEHOW STAYING POSITIVE...From little guys to big time investors, we're all trying to keep our spirits up on the good news and patiently wait out the bad. This week had a bit of both, ending Friday with the disappointing report that France lost its "AAA" credit rating and Italy and Spain are expected to drop a couple of notches in their ratings as well. But investors found enough encouragement to help stocks post a modest gain for the second trading week of the year. One thing that made everyone upbeat was the latest University of Michigan Consumer Sentiment, which shot up from December's 69.9 to a preliminary reading of 74.0 for January, its highest level since May 2011. But disappointing news came with December Retail Sales--up just 0.1% overall and down 0.2%, excluding autos. The Fed's Beige Book noted a modest increase in economic activity but said nothing to allay concerns over the slow pace of recovery. Finally, the trade deficit grew to $47.8 billion with a drop in exports. For the week, the Dow ended UP 0.5%, at 12422; the S&P 500 closed UP 0.9%, to 1289; and the Nasdaq gained 1.4%, to 2711. The bond market enjoyed the benefits of the flight to safety by investors who had new reasons to fret over the European sovereign debt situation. The FNMA 3.5% bond we watch ended the week UP .03, at $103.08. National average rates for all types of mortgages tracked by Freddie Mac hit new lows for the week ending last Thursday. DID YOU KNOW?...Inflation is the overall general upward price movement of goods and services in an economy, usually as measured by this week's Consumer Price Index (CPI) and Producer Price Index (PPI). >> This Week’s Forecast HOME BUILDING, EXISTING HOME SALES, INFLATION... Housing news comes Thursday with December Housing Starts and Building Permits gauging the state of new construction. The annual rates are expected to dip a little, staying just under 700,000. Friday's Existing Home Sales for December are expected to rise to 4.57 million, which is encouraging. The week also features December PPI wholesale inflation readings, forecast holding in safe territory, and consumer CPI inflation numbers, also predicted to hold steady. Monday, U.S. markets are closed in observance of Martin Luther King, Jr., Day. >> 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 Jan 16 – Jan 20  Date Time (ET) Release For Consensus Prior Impact Tu Jan 17 08:30 NY Empire State Manufacturing Jan 10.0 9.5 Moderate W Jan 18 08:30 Producer Price Index (PPI) Dec 0.1% 0.3% Moderate W Jan 18 08:30 Core PPI Dec 0.1% 0.1% Moderate W Jan 18 09:15 Industrial Production Dec 0.5% -0.2% Moderate W Jan 18 09:15 Capacity Utilization Dec 78.1% 77.8% Moderate Th Jan 19 08:30 Initial Unemployment Claims 1/14 387K 399K Moderate Th Jan 19 08:30 Continuing Unemployment Claims 1/7 3.613M 3.628M Moderate Th Jan 19 08:30 Consumer Price Index (CPI) Dec 0.1% 0.0% HIGH Th Jan 19 08:30 Core CPI Dec 0.1% 0.2% HIGH Th Jan 19 08:30 Housing Starts Dec 670K 685K Moderate Th Jan 19 08:30 Building Permits Dec 680K 681K Moderate Th Jan 19 10:00 Philadelphia Fed Manufacturing Jan 10.0 10.3 HIGH Th Jan 19 11:00 Crude Inventories 1/14 NA 4.958M Moderate F Jan 20 10:00 Existing Home Sales Dec 4.57M 4.42M Moderate >> Federal Reserve Watch    Forecasting Federal Reserve policy changes in coming months... The experts expect the Fed Funds Rate to stay at super low levels. 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 Jan 25 0%–0.25% Mar 13 0%–0.25% Apr 25 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Jan 25      <1% Mar 13      <1% Apr 25      <1%

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