Financial Market Update

This Week: after a serious bout of selling last week in the bond and mortgage markets that jumped mortgage rates up 12 basis points, we look for a little improvement. However, it is unlikely the bearish outlook and technical picture will change. The overwhelming bullish outlook for rates on the QE move has not matched the earlier enthusiasm that drove traders and investors in a buying binge until the details were laid out on Nov 3. What markets were expecting was more Fed buying at the long end of the curve, 10 yr note specifically, the Fed didn't do it. Most of the scheduled Fed treasury buying over the next six months will be at the 5 yr note and 3 yr note area.

This week has a plate full of economic releases after very little economic news last week. Inflation reads on the producer price index and the consumer price index will get a close look from traders. Inflation is one reason the long end of the yield curve ( 10 yr notes, mortgages) are unlikely to experience much in the way of lower rates. The Fed has on many recent occasions made it abundantly clear it wants the level of inflation higher to avoid the potential of the US falling into a Japanese type deflationary economy. Three months ago we warned that the lows in the mortgage interest rates had likely been achieved and so far that has held with the exception of a very brief run when the Fed indicated it was prepared to print more money (ease) on Sept 21st at the conclusion of the FOMC meeting. We continue to believe the lows have been met and that mortgage rates while not likely to spike a lot higher in the next few months, won't decline much from present levels.

Market update & advice from our brokerage

It looks like things are holding their own right now with a slight improvement over last month's report.
 
Detached:
8,334 homes are now on the market for sale vs. 8,495 last month.  The same number of new escrows, 1,521, opened in October as in September.  With these numbers we have a 5.48 month inventory of homes.  When we add in the number of "Contingents" (short sales that went under new contracts) in October we find that another 2,016 homes came off the market.  The total of new escrows plus contingents was 3,537 and those numbers tell us that we have a 2.4 month inventory overall.  In normal markets we would see prices rising but we are in more of a neutral range due to the economic conditions.  A number of those contingents will never close escrow with the current buyer due to the time needed to process short sales.  Sellers should price their homes as aggressively as possible to compete with the best and most comparable direct competitor on the market if they hope to receive serious activity.
 
Attached:
4,040 condos and town homes are now on the market county wide vs. 4,086 last month.  783 new escrows were opened in October vs. 775 in September, so the inventory went down a little and the number going into escrow increased slightly.  This gives us 5.22 months of inventory based on only the "pending" numbers.  When we add back in the number of new "contingents" another 1,512 units brings the number of pendings plus contingents to 2,295, down slightly from last month but still giving us 1.78 months of inventory.  Again, as with the detached units, there is not much upward pressure on prices even though several media outlets have reported increases to the median price levels.


R. Ungar, Associate Broker – Keller Williams Realty

Financial Market Update

This week is one big week for the markets. Since Sept 21st at the conclusion of the FOMC meeting when the Fed announced it was prepared to buy more treasuries the bond and mortgage markets have had a yo-yo ride. On the announcement it set up a big move lower in rates taking the 10 yr down 40 basis points, then markets began to see an easing move as a step to increase inflation and the bond and mortgage markets turned and now sit about where interest rates were prior to the FOMC meeting. On Wednesday the FOMC will actually announce what the Fed intends. Unless there is some form of shock and awe the Fed's easing move may simply be another failed attempt to revive the housing markets and the economy.

Economic data ends the week with the employment report on Friday. In the meantime the data calendar has key data ;points everyday this week except Tuesday, election day. The election is the least of the issues this week as there is little doubt Republicans will take the House but likely not the Senate. Talk of grid-lock with the change in Congress; normally considered good, grid-lock this time is something to avoid with the economy barely holding on. Nothing expected from the elections until January when the new Congress gets underway, in the meantime the lame duck Congress is all about scrambling the eggs. Extending the tax cuts coming at the end of the year is the main event.

Difficult to predict how the bond market will take the FOMC policy statement on Wednesday, in the meantime the rate markets will likely stay about where they are. Friday's Oct employment report is expected with just 60K non-farm private job growth and the unemployment rate unchanged at 9.6%. Unless job growth exceeds 100K a month it doesn't even cover the new entries in the job market let alone those that have lost jobs in the recession.