Austin Texas Real Estate Blog

What Did Interest Rates Do This Week?

** based on Freddie Mac weekly average survey **
30-yr Fixed – Slightly Lower
This Week:  4.91%
Last Week:  4.98%
1yr Ago:  6.14%

15-yr Fixed – Slightly Lower
This Week:  4.36%
Last Week:  4.40%
1yr Ago:  5.81%

Jumbo Fixed (Average 30-yr Fixed)
Last Week:  5.75%
Previous Week:  5.895%

Highlight of This Week’s Major Economic Reports

Trading activity in the bonds market, as well as the release of new economic data, was light during this holiday-shortened week.  One bright note, however, was that the government reported the latest unemployment benefit claims dropped by 12,000 last week, which conveys (in the past four weeks) the emergence of a slight improvement in the job market.  Of course, we’re still far from a full recovery in the labor sector, but we’ll take any good news we can get.

Additionally, the Fed just hit the $1 trillion milestone for its purchase of mortgage-backed securities.  This program has kept mortgage rates remarkably low throughout the year, and the Fed is committed to spending the full $1.25 trillion through the end of March 2010.  Once this program ends, all expectations are that mortgage rates will start to climb to more closely align with yields on US Treasuries.

What to Look for Next Week

Inflation and housing take center stage next week.  The latest Retail Sales figures are also due out, and it’s expected to post a slight gain from the previous month.

Short-Term Rate Outlook
Relatively Unchanged

Stay Informed:  What’s in the News

“Texas Cities Dominate List of Top Performers” from Milken Institute via Texas A&M RECON

Texas metros, led by number one Austin–Round Rock, claimed four of the top five spots and nine of the top 16 in the 2009 Milken Institute/Greenstreet Real Estate Partners Best-Performing Cities Index.

Also making the list were Killeen–Temple–Fort Hood (2), McAllen-Edinburg-Mission (4), Houston–Sugar Land–Baytown (5), San Antonio (11), Fort Worth–Arlington (12), Dallas-Plano-Irving (13), El Paso (14) and Corpus Christi (16).

Austin–Round Rock was the first metro to ever be ranked number one twice on the index, the last time being in 2000.

But it doesn’t stop there. Nine other Texas metros made the top 25 out of the 124 smallest metros that were studied.

Those were Midland (1), Longview (2), Tyler (4), Odessa (5), College Station–Bryan (14), Texarkana (17), Waco (18), Laredo (20) and Abilene (21).

Leaders in this year’s index, which ranks U.S. metros based on their ability to create and sustain jobs, are all metros that succeeded in avoiding the worst of economic declines driven by falling housing markets and job losses in manufacturing and global trade.

Regional economic factors also strongly influenced the rankings this year, with the oil and gas sector, technology and alternative energy providing stability among metros in Texas, North Carolina, Washington and Louisiana.

Another factor helping Texas metros move up in the rankings is the state’s favorable business climate and its ability to attract jobs and corporations away from higher-cost states.

“Economists See Fed Raising Rates Near Midterm Election” from The Wall Street Journal

Economists in the latest Wall Street Journal survey, on average, expect the Federal Reserve to raise interest rates around September 2010, a politically sensitive time considering midterm elections will be right around the corner and unemployment is forecast to still be over 9.5%.  The 52 surveyed economists—not all of whom answer every question—on average expect the unemployment rate to rise to 10.3% by the end of this year from its current 10.2%, and they expect it to stay above 9.5% through 2010. The respondents expect job growth to return over the next 12 months, but the forecast calls for an average of about 50,000 jobs to be added per month over that period. The economy needs to add about 100,000 jobs a month just to keep up with new entrants to the labor force.

“Foreclosures: ‘Tide may be turning’” from CNNMoney.com

Could the foreclosure plague be ending? Foreclosure filings were down 3% in October, the third consecutive month-over-month dip, according to RealtyTrac, the online seller of foreclosed homes. To be sure, foreclosure rates are still elevated from a year ago: They’re up 18% compared with October 2008. But the month-over-month decrease followed a 4% drop in filings during September and a 1% fall in August.

“5% of Americans Plan to Buy a Home Next Year” from CNBC.com

Just one in twenty Americans say they plan to buy a home within the next year, and they’re most likely to be 34 years old or younger and living in the South or West, according to a survey released Wednesday. Roughly a quarter of potential buyers said the No. 1 reason they would buy now is because prices have bottomed out. That reason topped bargain-priced foreclosures, worries about rising interest rates and a wide selection of homes.

“The Recession’s Over, but Not the Layoffs” from The New York Times

The Great Recession is over — not officially, but by popular acclaim — and in this accepted fact we are invited to take comfort, even as the unemployment rate last week rose into double digits for the first time in a quarter-century.  Experts have long assured us that economic life is governed by the business cycle, a repeating loop of downturn followed by expansion, as reliable as the seasons. In this context, worsening joblessness is like a punishing blizzard in April: Misery notwithstanding, the calendar promises spring.

“Texas Employment Feeling Pinch” from Texas A&M Real Estate Center

The Texas economy lost 292,700 nonfarm jobs from September 2008 to September 2009, an annual job loss of 2.8 percent.

Over the same period, the U.S. economy lost more than 5.7 million jobs, or 4.2 percent of its total nonfarm jobs.

The state’s seasonally adjusted unemployment rate rose from 5.1 percent in September 2008 to 8.2 percent in September 2009, while the U.S. rate rose from 6.2 percent to 9.8 percent during the same period.

Only three Texas industries (education and health services, other services, financial activities) and the government sector had more jobs in September 2009 than in September 2008. Eight other industries experienced net job losses over the same period.

Only one Texas metro area, McAllen-Edinburg-Mission, posted a positive employment growth rate from September 2008 to September 2009. Twenty-five metro areas had net job losses.

The state’s actual unemployment rate in September 2009 was 8.3 percent. Lubbock had the lowest unemployment rate followed by Amarillo, Midland, Abilene and College Station–Bryan.

Marie Funston | Sr. Mortgage Advisor | (512) 750-7270
9442 N Capital of Texas Hwy., Suite 1-600
Austin, TX 78759
Fax:  (512) 343-1224
Marie@austinmortgageadvisor.com

What Did Interest Rates Do This Week?
** based on Freddie Mac weekly average survey **

30-yr Fixed – Slightly Higher
This Week:  4.92%
Last Week:  4.87%
1yr Ago:  6.46%

15-yr Fixed – Slightly Higher
This Week:  4.37%
Last Week:  4.33%
1yr Ago:  6.14%

Jumbo Fixed
Average 30-yr Fixed:  5.895%

Highlight of This Week’s Major Economic Reports

Who would’ve thought a few months ago that we’d see the Dow top 10,000 again this year, but here we are at the beginning of the 4th quarter, and the stock market seems to be on a relentless drive, further fueling what is now the expectation of economic growth before the end of the year.  And, while money was being poured into the stock market, they were pulled out of the safe haven of US Treasuries, which has consequently caused the spike in interest rates.

Furthermore, recent readings on local market conditions across the country have revealed growing stability – and even some consistent improvement – the likes of which we haven’t seen in two years.  This supports the consensus that a technical end to the recession is looming near.  However, with unemployment still problematic and the issue of health care still unresolved, consumers aren’t feeling as upbeat as the numbers may convey.  As a result, consumer spending is still lagging with Retail Sales reporting a 1.5% slide last month.

What to Look for Next Week

More inflation reports and an updated peak at the housing market will headline next week’s economic calendar.  Inflation is expected to remain tame, while home sales are expected to post positive results, as first-time buyers flock to take advantage of the tax credit.

Short-Term Rate Outlook

Relatively Unchanged

Stay Informed:  What’s in the News
“When Will Recession End?” from Texas A&M Real Estate Center
Three things have to happen before the current recession can be declared ended. One is underway, said Dr. Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University.

“I think the economy will begin to turn for the better once the health care and cap-and-trade issues are settled. Those two political debates are creating substantial uncertainty for business owners and investors,” he said.

The personal savings rate is the second trend to watch, said Dotzour.

“Over 70 percent of the U.S. economy is consumer spending,” he said. “When the savings rate finally levels out, consumer spending will start to increase again.”

Increased corporate profits are the third trend that must occur to bring the recession to an end. There is some indication that has already begun. The last three data points were all up. Rising profits lessen the urge for companies to lay off workers.

Research Economist Dr. Jim Gaines added that the increased corporate profits have come from reduced costs, not the kind that leads to expansion.

“Keep your eye on these three issues,” Dotzour said. “When they are resolved, the economy will begin to turn the corner.”

“Texas Cities Labor Away” from Texas A&M Real Estate Center
Four of the five best labor markets in the country are in Texas, according to a new study compiled by Portfolio.com.

Austin leads the way, followed by San Antonio. Houston ranks fourth and Dallas–Fort Worth fifth.

Landing at third is Baton Rouge.

All 100 metropolitan areas in the study, including those in Texas, have seen employment decline since last year. However, while 5 percent of the nation’s private-sector jobs have disappeared since June 2008, the collective decline for the ‘Texas Four’ has been 2.6 percent.

The Texas markets still have 589,500 more jobs than they did five years ago.

Portfolio.com used a nine-part formula to analyze employment trends in the nation’s 100 largest labor markets. The formula used midyear U.S. Bureau of Labor Statistics data for 2004–09, including unemployment rates and trends, and raw and percentage changes in private-sector employment.

The last three years have seen sharp decline in the housing prices. Many of the declines have bottomed out markets and some local areas simply fell to the bottom and found they could go lower. Finally prices seem to be stabilizing across the board. What is good for the home buyer is the prices have stabilized on the lower end of the housing range. To this end, home buyers are coming back to the market place. This draw is being encouraged by low mortgage interest rates and an 8 thousand dollar tax credit that will expire at the end of November.

Starting in May of 2009 the Office of Federal Housing Enterprise Oversight (OFHEO) began to announce a steady increase in home prices over the previous month. It started with .09% and has continued to grow from there. One of the hardest declines was felt along the pacific coast, and recently they registered on the index with an increase of 2.7%.

An added benefit to the additional home sales is the improved price. At this point, reflecting on data released by the Department of Housing and Urban Development and the US Census Bureau, the increase is only 3.6% as of June 2009. These same resources have also identified an increase of new home sales by 11% the same month. This shows the foundation to a successful recovery period, which the United States housing market, is finally reaching.

The first real sign of our impending recession began in the national real estate market. Thousands of sub-prime loan holders began to fall behind or default completely as the job market became stressed. Since 2007, home prices have been on a steady decline nationwide. According to a recent report, the decline is beginning to slow down, but it is still there. It has now been 31 straight months on record indicating the falling prices. February 2008 showed a dip of 18.6% when compared to the same month in 2007, down from 19% recorded for January. There have been no rises in median home prices since 2006. Overall, the market has fallen by 30.7% since July 2006.

While this slowdown shows promise, experts refuse to get excited quite yet. With unemployment reaching higher levels, and not expected to jump up throughout this year, the real estate market will not really have a significant chance to rebound yet. Real estate analyst Mike Larson of Weiss Research states “it’s just a moderation in the monthly declines and it fits in with the pattern we’re seeing of things getting less bad.” There has been some slowing previously, but it had not led to any real stabilization. Most experts feel we are closing in on the bottom of the weak market, so this trend may be coming at a better time than the last.

Consumer confidence has also seemed to grow in the last couple of months. More people are looking into buying to take advantage of the great rates this recession and weak market has created. The ongoing credit crunch continues to inhibit many potential buyers from securing a loan, but that is not necessarily a bad thing. One of the largest factors in the real estate bubble burst was the non-traditional financing that allowed those with less than perfect credit to buy a home. When the payments increased, many were simply unable to keep up. Now, with more traditional lending practices back in full swing, those who purchase a home are more than likely able to afford it.