QUOTE OF THE WEEK..."The lure of the distant and the difficult is deceptive. The great opportunity is where you are."--John Burroughs, American naturalist and essayist
INFO THAT HITS US WHERE WE LIVE...The great opportunity now is for home buyers to get a mortgage at an historically low rate. Freddie Mac reported national average mortgage rates set new record lows last week. But according to most observers, buyers shouldn't expect further rate dips. Lenders are seeing plenty of loan volume, so they don't have to lower pricing to get more activity.
Opportunity was also one of the themes in Fannie Mae's August National Housing Survey, where 69% of Americans polled say now is a good time to buy a home. And in spite of all the talk about more price declines, people expect home prices to dip only 0.5% in the next year. This is why some observers feel we're at a price bottom now. A strong 46% of Americans expect rents to go up in the next year, so that should motivate purchases as well.
BUSINESS TIP OF THE WEEK...Business school researchers found that the businesses able to survive economic downturns were ones who continually changed in response to the business climate, adapted to the headwinds and constantly tried new ideas.
>> Review of Last Week
CONTINENTAL DRIFT...In four days of stock trading, the Dow drifted down for the sixth week out of the last seven, all because of financial dramas on the European continent. Europe's Central Bank President failed to offer any plan to stimulate growth following the downward revision to his GDP forecast for the region. Friday there was talk that Greece might default on its debt over the weekend. On our shores, news that weekly initial jobless claims are still above 400,000 didn't help matters either.
Even a couple of surprisingly good U.S. economic reports couldn't overcome all these bad vibes. The August ISM Services Index was UP, to a better-than-expected 53.3, showing expansion in the non-manufacturing sector responsible for about 85% of our jobs. Following this, it was reported that the July Trade Deficit shrank, thanks to a $6.2 billion INCREASE in exports, which are UP 15.1% in the last year, ahead of imports, up 13.6%.
For the week, the Dow ended down 2.2%, at 10992; the S&P 500 was down 1.7%, to 1154; and the Nasdaq was down 0.5%, at 2468.
Friday the bond market saw a huge flight to safety by investors motivated by those rumors of a weekend Greek default. A government spokesman in Athens said that wouldn't be so, but Wall Streeters opted for sleeping undisturbed until Monday. The FNMA 3.5% bond we track closed Friday at $102.03, up .81 for the week. Mortgage bond prices were up and, as mentioned above, national average mortgage rates set new record lows.
DID YOU KNOW?...The CPI inflation indicator measures the change in the cost of a fixed basket of products and services like housing, food and transportation. The Core CPI favored by the Fed excludes food and energy prices because of their monthly volatility.
>> This Week’s Forecast
This week began with the observance of the 10th anniversary of the September 11 terrorist attacks. Our thoughts are with all those who lost their lives and with their families, whose lives were forever changed.
INFLATION, RETAIL, MANUFACTURING...Wholesale inflation is expected to be well under control in Wednesday's Producer Price Index (PPI) and Core PPI readings for August. Thursday, the critical Consumer Price Index (CPI) and Core CPI inflation measures are also forecast well within the Fed's target range. August Retail Sales should still show consumers doing their part, although sales growth is predicted to be less than July's.
Manufacturing is expected to be down a tad in the August Industrial Production and Capacity Utilization readings. And the Empire Manufacturing Index for New York and the Philadelphia Fed Index should still show contraction in those regions, although less than in the prior month.
>> 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 Sep 12 – Sep 16
Forecasting Federal Reserve policy changes in coming months...Economists see a hike in the Funds Rate as the farthest thing from the Fed's collective mind, clear through the first half of 2013. 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%
Probability of change from current policy:
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