Inside Lending Newsletter - For the week of January 30, 2012 – Vol. 10, Issue 5

>> Market Update  QUOTE OF THE WEEK..."Before everything else, getting ready is the secret of success." --Henry Ford INFO THAT HITS US WHERE WE LIVE...Getting ready for a recovery could be the theme of last week's housing reports. Pending Home Sales, after hitting a 19-month high in November, dipped a bit for December, yet came in 5.6% above where they were a year ago. The National Association of Realtors chief economist observed, "Even with a modest decline, the preceding two months of contract activity are the highest in the past four years outside of the homebuyer tax credit period." Thursday saw December New Home Sales drop 2.2%, to a lower-than-expected 307,000 annual rate. Yet sales remain in the narrow range they've occupied since May 2010. And the best news was that new home inventories dropped to 157,000, the lowest level on record, since 1963. Unsold new homes under construction and unsold completed new homes are at or near record lows. Experts say this is what's needed to get ready for a sustained housing recovery. Finally, the FHFA price index for homes bought with conforming mortgages was UP 1% in November. BUSINESS TIP OF THE WEEK... Our motivation colors our work. People driven by money can appear self-serving. But people driven to do the best for their clients usually come off as effective and valuable. >> Review of Last Week UP AND DOWN... It was a week where investors couldn't decide if they felt positive or negative about the economy and the major market indexes reflected this, with two of them heading up for the week but the third one ending down. The big news? The Fed extended its pledge to hold interest rates exceptionally low -- from mid-2013 to late 2014. And for the first time, the FOMC set a specific inflation goal: 2%. Also for the first time, the Fed released the rate expectations of each member. The median showed no change this year or next and a hike to only 0.75% by the end of 2014. Other good news came with Durable Goods Orders, up a better than expected 3% for December. Unfortunately, this was followed by initial jobless claims, up 21,000 for the week, to 377,000. Finally, the Advance GDP estimate for Q4 came in at a 2.8% annual rate. This was better than Q3, but less than expected. Economists were also disappointed that a large part of the increase was only due to an unexpected buildup in inventories. For the week, the Dow ended down 0.5%, at 12661; the S&P 500 closed up 0.1%, at 1316; and the Nasdaq gained 1.1%, to 2817. The Fed's announcement it will hold rates low even longer, plus their inflation target, did wonders for bonds. The FNMA 3.5% bond we watch ended the week UP 1.01, to $103.22. National average mortgage rates edged up a bit in Freddie Mac's weekly survey of conforming mortgages, though they're still at historically low levels. Experts put this to the improving housing market data. DID YOU KNOW?...Tuesday's Employment Cost Index measures changes in wages, benefits and bonuses for a group of occupations. It's an inflation indicator because prices can go up with increased labor costs, unless offset by productivity gains. >> This Week’s Forecast INFLATION, MANUFACTURING, JANUARY JOBS... Hot buttons this week touch all the hot topics. Monday we see the Fed's favorite inflation measure, Core PCE Prices, expected to stay within the central bank's guidelines. The manufacturing sector gets covered in Tuesday's Chicago PMI, forecast down a trifle, but Wednesday's ISM Index is predicted up for the month. The hottest of the hot data comes Friday, with the January Employment Report. The forecast is for a smaller gain in payrolls than last month's. Historically, as employment improves, it pulls housing along with it. >> 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 30 – Feb 3  Date Time (ET) Release For Consensus Prior Impact M Jan 30 08:30 Personal Income Dec 0.4% 0.1% Moderate M Jan 30 08:30 Personal Spending Dec 0.1% 0.1% HIGH M Jan 30 08:30 Core PCE Prices Dec 0.2% 0.1% HIGH Tu Jan 31 08:30 Employment Cost Index Q4 0.4% 0.3% HIGH Tu Jan 31 09:45 Chicago PMI Jan 62.0 62.5 HIGH Tu Jan 31 10:00 Consumer Confidence Jan 67.0 64.5 Moderate W Feb 1 10:00 ISM Index Jan 54.7 53.9 HIGH W Feb 1 10:30 Crude Inventories 1/28 NA NA Moderate Th Feb 2 08:30 Initial Unemployment Claims 1/28 375K 377K Moderate Th Feb 2 08:30 Continuing Unemployment Claims 1/21 3.525M 3.550M Moderate Th Feb 2 08:30 Productivity-Prelim. Q4 0.6% 2.3% Moderate F Feb 3 08:30 Average Workweek Jan 34.4 34.4 HIGH F Feb 3 08:30 Hourly Earnings Jan 0.2% 0.2% HIGH F Feb 37 08:30 Nonfarm Payrolls Jan 170K 200K HIGH F Feb 3 08:30 Unemployment Rate Jan 8.5% 8.5% HIGH F Feb 3 10:00 ISM Services Jan 53.1 52.6 Moderate >> Federal Reserve Watch    Forecasting Federal Reserve policy changes in coming months... At last week's FOMC meeting, the Fed extended its goal of keeping the Funds Rate super low through late 2014. 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 Mar 13 0%–0.25% Apr 25 0%–0.25% Jun 20 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Mar 13      <1% Apr 25      <1% Jun 20      <1%

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