Inside Lending Newsletter - For the week of January 23, 2012 – Vol. 10, Issue 4

>> Market Update  QUOTE OF THE WEEK..."Happiness is not a state to arrive at, but a manner of traveling." --Margaret Lee Runbeck INFO THAT HITS US WHERE WE LIVE...Well, we can all make our way with a bit of a smile on our faces, courtesy of the latest Housing Starts numbers. At first blush, the December report seemed disappointing, down 4% for the month. But starts overall are UP 24.9% from a year ago and December's drop was all from multi-family starts, very volatile month-to-month. Single-family starts were UP 4.4% for the month and UP 11.6% for the year. No wonder the National Association of Home Builders confidence index went to 25, its highest reading since 2007. For those who still couldn't put on a happy face, Friday's data should have done the trick. Existing Home Sales were UP 5% in December, their third consecutive gain, to their highest level since January 2011. The inventory of existing homes is down 21% from last year and the months' supply dropped to 6.2, the lowest level since April 2006. For all of 2011, sales of single-family homes, townhomes, condos and co-ops rose 1.7%, to 4.26 million units. BUSINESS TIP OF THE WEEK... There are so many variables in business, you can't know exactly how you will reach your goal. So what matters most is your determination to get there. >> Review of Last Week HAPPY NEW YEAR SO FAR...All three major market indexes ended ahead again for the week, chalking up very nice gains for the very young year--the Dow UP 4.1%, the S&P 500 UP 4.6% and the Nasdaq UP 7.0% thus far. Investor sentiment is generally a good leading indicator for the economy, but the recovery is still slow and the economic reports continue to deliver mixed messages. Industrial Production, up 0.4% in December, fell short of expectations. Yet two regional manufacturing indexes did better for the month: the Empire State and the Philadelphia Fed. On the inflation front, producer prices were down 0.1%, though Core prices excluding food and energy were up 0.3%. The Consumer Price Index was unchanged, but Core CPI went up 0.1%. The best news? Weekly Initial Unemployment Claims fell to 352,000, their lowest level since April 2008. For the week, the Dow ended UP 2.4%, at 12720; the S&P 500 closed UP 2.0%, to 1315; and the Nasdaq gained 2.8%, to 2787. With stocks rallying, heavy selling in the bond market sent prices southward. Investors were also calmed by hopes of a Greek debt deal, though that hasn't happened yet. The FNMA 3.5% bond we watch ended the week down .87 to $102.21. Freddie Mac's survey of conforming mortgages showed national average mortgage rates virtually unchanged, staying at record low levels for another week. DID YOU KNOW?...This week's Advanced GDP number will be revised twice, with next month's Preliminary GDP and then Final GDP a month later. These revisions can impact financial markets. >> This Week’s Forecast PENDING HOME SALES, NEW HOME SALES, THE FED, THE GDP... This week isn't missing much in the way of interesting topics. December Pending Home Sales come Wednesday, forecast down a bit after a November gain. The Fed's FOMC Rate Decision shouldn't change anything, but for the first time, Fed member's outlooks on interest rates will be released. Following this will be Chairman Bernanke's press conference and that could be interesting. December New Home Sales happen Thursday, projected to inch up a bit. Friday we get how the overall economy did in Q4, with the Advanced GDP estimate. Gross Domestic Product is expected to climb from an anemic 1.8% to a more acceptable 3.1%. >> 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 23 – Jan 27  Date Time (ET) Release For Consensus Prior Impact W Jan 25 10:00 Pending Home Sales Dec -3.0% 7.3% Moderate W Jan 25 10:30 Crude Inventories 1/21 NA -3.438M Moderate W Jan 25 12:30 FOMC Rate Decision 1/25 0%-0.25% 0%-0.25% HIGH Th Jan 26 08:30 Initial Unemployment Claims 1/21 375K 352K Moderate Th Jan 26 08:30 Continuing Unemployment Claims 1/14 3.550M 3.432M Moderate Th Jan 26 08:30 Durable Goods Orders Dec 2.0% 3.7% Moderate Th Jan 26 10:00 New Home Sales Dec 322K 315K Moderate Th Jan 26 10:00 Leading Economic Indicators (LEI) Dec 0.7% 0.5% Moderate F Jan 27 08:30 GDP-Adv. Q4 3.1% 1.8% Moderate F Jan 27 08:30 GDP Chain Deflator-Adv. Q4 1.5% 2.6% Moderate F Jan 27 09:55 U. of Michigan Consumer Sentiment-Final Jan 74.2 74.0 Moderate >> Federal Reserve Watch    Forecasting Federal Reserve policy changes in coming months... Virtually all the experts say the Fed Funds Rate will stay at its super low level coming out of this week's FOMC meeting. 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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