Inside Lending Newsletter -For the week of March 12, 2012 – Vol. 10, Issue 11

>> Market Update  QUOTE OF THE WEEK..."Opportunities? They're all around us...there is power lying latent everywhere waiting for the observant eye to discover it." --Orison Swett Marden INFO THAT HITS US WHERE WE LIVE... It shouldn't take a particularly observant eye to see the historic affordability available to home buyers, thanks to current home prices and mortgage rates. The National Association of Realtors (NAR) Housing Affordability Index reached a 42-year high in January. An index of 100 represents a median-income family's ability to afford a median-priced, existing single-family home, with a 20% down payment and mortgage payments at 25% of gross income. January's record reading was 206.1!  Freddie Mac's chief economist commented, "the typical family had more than double the income needed to purchase a median-priced home in January." There's also talk about prices finally bottoming out. Data aggregator CoreLogic's National Home Price Index in January was at its lowest level since January 2003, and their chief economist noted prices are "not far from the bottom."  Finally, the NAR forecasts existing home sales UP 6.8% for the year. BUSINESS TIP OF THE WEEK...  Pay attention to the little stresses in your work. They're usually easy to fix, but if you ignore them, you can wind up with a whole bunch that add up to one big stress. >> Review of Last Week DOW, OW! OTHER TWO, UP... Investors responded to the now usual combination of better and worse than expected economic news by sending the Dow down, but keeping the other two market indexes up for the week. Monday's ISM Non-Manufacturing showed slightly stronger than expected growth among service businesses. But our economy is now globally connected, so it wasn't good that China dropped its 2012 growth forecast to 7.5%, the lowest in eight years, and Eurozone Q4 GDP shrunk 0.3%. Meanwhile, our trade deficit ballooned in January to $52.6 billion. There were enough negative vibes to dampen investor optimism over the February Employment Report's gain of 227,000 nonfarm jobs. The unemployment rate remains 8.3%, with almost 13 million out of work. There are 8.1 million "involuntary part-time workers" who want a full-time job but can't find one. And over half the increase in professional and business services jobs were in temporary help services. So the housing market still isn't seeing the jobs recovery it needs. For the week, the Dow ended down 0.4%, at 12922; the S&P 500 closed UP 0.1%, to 1371; and the Nasdaq went UP 0.4%, to 2988.  Better than expected economic data, plus a Greek debt agreement, sent bond prices lower. But details of the Greek deal kept worries alive, sending investors back to the safety of bonds. The FNMA 3.5% bond we watch ended the week down .06, to $103.08. The national average rate for 15-year fixed mortgages hit a record low in Freddie Mac's weekly survey, while national average rates for all other mortgage types continued near record lows.  DID YOU KNOW?... A company's Market Capitalization is the value of all outstanding shares, calculated by multiplying the total number of shares by the current market price of one share. >> This Week’s Forecast RETAIL SALES, THE FED AND INFLATION... Tuesday gives us Retail Sales for February, predicted to be flat, excluding auto sales, but up a bit when you include them. A few hours later that day, we'll have the FOMC Rate Decision from the Fed. No one expects them to touch the Funds Rate, but their Policy Statement will be scrutinized for its take on the economy. The Fed keeps an eye on inflation, but we won't get those readings until Thursday's February wholesale PPI inflation and Friday's CPI consumer inflation. They're both forecast to be up overall, but the Core numbers, which exclude volatile food and energy prices, are what the Fed pays attention to. They should be up just a bit, but within Fed guidelines. >> 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 Mar 12 – Mar 16  Date Time (ET) Release For Consensus Prior Impact Tu Mar 13 08:30 Retail Sales Feb 1.0% 0.4% HIGH Tu Mar 13 08:30 Retail Sales ex-auto Feb 0.7% 0.7% HIGH Tu Mar 13 10:00 Business Inventories Jan 0.6% 0.4% Moderate Tu Mar 13 14:15 FOMC Rate Decision 03/13 0%-0.25% 0%-0.25% HIGH W Mar 14 10:30 Crude Inventories 03/10 NA 0.832M Moderate Th Mar 15 08:30 Initial Unemployment Claims 03/10 358K 362K Moderate Th Mar 15 08:30 Continuing Unemployment Claims 03/03 3.415M 3.416M Moderate Th Mar 15 08:30 Empire State Manufacturing Mar 15.0 19.5 Moderate Th Mar 15 08:30 Producer Price Index (PPI) Feb 0.5% 0.1% Moderate Th Mar 15 08:30 Core PPI Feb 0.2% 0.4% Moderate Th Mar 15 10:00 Philadelphia Fed Manufacturing Mar 12.5 10.2 HIGH F Mar 16 08:30 Consumer Price Index (CPI) Feb 0.4% 0.2% HIGH F Mar 16 08:30 Core CPI Feb 0.2% 0.2% HIGH F Mar 16 09:15 Industrial Production Feb 0.5% 0.0% Moderate F Mar 16 09:15 Capacity Utilization Feb 78.8% 78.5% Moderate F Mar 16 09:55 Univ. of Michigan Consumer Sentiment Mar 76.0 75.3 Moderate >> Federal Reserve Watch    Forecasting Federal Reserve policy changes in coming months... No one living in the real world expects the Fed to raise the Funds Rate at 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 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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