Steve Peterson, Sierra Pacific MortgageOffice: 888-232-7687

Despite the weak existing sales report–relatively easily explained by
the timing of the $8,000 tax credit expiration–the real estate
recovery does seem to be moving forward, albeit very gradually.

It is worth paying close attention to economic indicators for quite
some time to come. They are virtually all the markets have to go on.
Their initial impact can push the markets up or down and then, as
reality seeps in and investors read the indicators a bit more closely,
the markets tend to correct slightly…and we wait for the next
indicator du jour to rock the boats.

This is not a terrible thing, as you’ve most likely noticed. Interest
rates have been running in a narrow channel that is blissfully low.
Stock markets have been edging up, mostly. And the occasional sound
and fury doesn’t clamp the lid shut on the housing market. Thus, it
appears, will the market wend its way back to health.

We hope your business is doing the same–getting healthier–only more
so.

Please find attached this week’s economic update. A copy of it is also at the bottom of this email in case you are not able to open the attachment.

Conforming 30 year fixed rates are currently 4.875% with no points (primary residence with 20% down on a single family dwelling, excellent credit, etc.).

The best jumbo rates are 4.00% with no points for 5/1 ARMS for loan amounts up to $850,000 (Primary residence, SFD, 70% loan to value, Nevada, etc.).

January 27, 2010

KEY INDICATORS

Gold $1100.10/ounce [down]Crude Oil (Brent) $73.22/brl [down]U.S. Dollar to… Euro .7099 [up] Japanese Yen 89.70 [down]6-mo Treasury Bill Yield 0.14%10-yr Treasury Note Yield 3.62%[6-mo up 1 bp, 10-yr down 8 bps]11^th Dist Cost of Funds 2.094%[+]30-yr Fixed-rate Mortgage 5.42%15-yr Fixed-rate Mortgage 4.86%1-yr ARM 4.73%[HSH averages rates: 30-yrup 3 bps,15-yr up 9 bps; 1-yr ARM up 78 bps]

Mortgage Bankers Association Mortgage Applications Index week ending 1/15 Overall 575.9 (up 9.1%; up 14.3% the week prior) Purchase Money Loans 223.0 (up 4.4%; up 0.8% the week prior) Refinancing Loans 2663.8 (up 10.7%; up 21.8% the week prior)

Jobless Claims 1/16 482,000 – prior week 444,000 – continuing claims edged to 4.599 m

Conference Board Index of Leading Indicators Dec Up 1.1% – Nov was revised up 0.1% to 1%

Existing Home Sales Dec Down 16.7% from Nov

Producer Price Index (PPI) Dec Up 0.2% – core unchanged

Weekly Commentary

“Under [the best] circumstances, this year will be the first time since 2005 that residential construction supports the nation’s economy rather than weighs on it. The support the economy will receive from homebuilding will be modest, however. Housing starts will run far below the trend pace this year and will not reach a normal pace until 2012.” [Celia Chen, Moody’s Economy.com]

The best of circumstances, in this case, would include “job losses abating, a number of foreclosure modifications working, and restored confidence in the economy and the housing market”—all of which is uncertain, at best.

Certainly, the nation’s mood regarding the housing market was not elevated by the 16.7% monthly decline in existing-home sales. But let’s look at this more closely. There’s good news to be found.

The existing-home sales report tells us about closed sales, not about newly-signed purchase contracts. So what we have here is the number of closings in the month after people stopped buying because they thought the $8,000 first-time homebuyer tax credit had expired. This is like the car sales in the month after the cash for clunkers program was finished. Or the sales in a department store after the two-week “80% off everything” discounting ceases and prices rise to their old levels.

With the $8,000 tax credit program extended and expanded (with a $6,500 tax credit program for “move-up” homebuyers), we already have evidence that sales are gradually starting to regain their momentum. (What happens in July, when this program has expired, remains to be seen.)

And notice the little-reported aspects of the existing-home sales report: “For the first time since 2006, the median existing-house price is up year over year.” This is a very positive sign, suggesting that home prices may soon start firming. And “on a year-ago basis, sales are up strongly, led by the Northeast with a 21% gain. The South and West follow with gains of about 15%, and Midwest sales grew by 9%.” [Quotations from Celia Chen.]

Clearly, there are many ways to read economic indicators. This report suggests that we look deeper into what the numbers tell us rather than merely at what the headlines declare, and that we look at what has happened over the longer-term, not just short-term changes. One other piece of data: fourth-quarter sales were 5% higher than were third quarter sales, even with this decline, and posted the first annual gain since 2005.

Steve Peterson, Sierra Pacific Mortgage

Conforming 30 year fixed rates are currently 5% with no points (primary residence with 20% down on a single family dwelling, excellent credit, etc.).

The best jumbo rates are 4.00% with no points for 5/1 ARMS for loan amounts up to $850,000 (Primary residence, SFD, 70% loan to value, Nevada, etc.).

It’s pleasant to be a little more optimistic this week than last. Perhaps someday we’ll have a trend that lasts more than, say, 24 hours. I actually do suspect that real estate will emerge as a source of growing strength for the rest of the market, but the rest of the market is still plagued by odd problems–as discussed last time–caused largely by the way the Fed and Treasury have pushed interest rates so low (relative to where they would have been if left alone). We could see a stock market correction that strikes fear into the heart of Wall Street. I doubt it will last long, though.

At this point, much seems to turn on how gentle the Fed’s withdrawal from purchasing gigantic amounts of mortgage-backed securities will be. It’s a worrisome balancing act–pitting the need to get out of “artificially” supporting low rates (which could ultimately prove to be highly inflationary) and, nonetheless, to support the markets so that an interest rate spike doesn’t cut off the recovery.

January 20, 2010

KEY INDICATORS

Gold $1138.60/ounce [up]Crude Oil (Brent) $76.59/brl [down]U.S. Dollar to… Euro .7007 [up] Japanese Yen 91.14 [up]6-mo Treasury Bill Yield 0.13%10-yr Treasury Note Yield 3.70% [6-mo up 1 bp, 10-yr down 12 bps]11^th Dist Cost of Funds 2.094%[+]30-yr Fixed-rate Mortgage 5.39%15-yr Fixed-rate Mortgage 4.77%1-yr ARM 3.95% [HSH averages rates: 30-yr down 9 bps,15-yr down 17 bps; 1-yr ARM down 55 bps]

Mortgage Bankers Association Mortgage Applications Index week ending 1/8 Overall 528.1 (up 14.3%; up 0.5% the week prior) Purchase Money Loans 213.7 (up 0.8%; up 3.6% the week prior) Refinancing Loans 2407.2 (up 21.8%; down 1.6% the week prior)

Jobless Claims 1/9 444,000 – prior week 434,000 – continuing claims fell to 4.596 m

Consumer Price Index (CPI) Dec Up 0.1% – core CPI (without food or energy data) up 0.1% – annual core inflation now 1.8%

Retail Sales Dec Down 0.3% – weak holiday sales data
Weekly Commentary

“Positive momentum continues to be generated in the housing market. For example, credit markets are beginning to thaw. Several big banks have lowered their down payment requirements. Looser credit will reinforce market stability by fostering demand. Further, house prices have posted quarter-to-quarter gains for two consecutive quarters, according to the Case-Shiller home price index, through the third quarter of 2009. Finally, a steadying labor market combined with near record-high affordability will begin to draw potential homebuyers back to the market through 2010. These factors all suggest that home sales have long ago bottomed and will continue to trend upward over the next year, albeit at a very moderated pace.” [Michael Zoller, Moody’s Economy.com]

Mr. Zoller, though optimistic overall, remains very concerned about the fragility of the real estate recovery. Surely we all feel concern. But it is good to step back from the incessant fluctuations of the credit markets and the pronouncements of analysts—positive one day, down in the mouth the next—and seek the underlying trends in the market.

Intriguingly, Zoller even forgets to mention the $8,000 and $6,500 tax credits now available to so many buyers. These are likely to raise sales volume noticeably for a couple of months. Very few people have any expectation that the tax credit programs will be renewed once again, so we can expect another last-minute rush to sign purchase contracts by April 30, and a rush to close those deals before June 30.

Meanwhile, low rates are currently being supported by the enthusiasm among international investors for U.S.Treasury securities and corporate bonds. This enthusiasm is motivated in part by the widespread concerns about the fiscal viability of many European countries, notably Greece and Spain (and the very deep financial woes of Iceland and Dubai). The U.S. simply looks like a safer place to store wealth and watch it grow a bit—in spite of the stunning growth of our national debt.

Worrisome, though, are the on-going indications that American consumers are still reticent about opening their wallets, and employers are still waiting to do much hiring again. The unemployment insurance claims (to the left) are fewer, but they are shuffling their feet, and retail sales also remain uninspiring. But the gathering strength in the real estate market is likely to help.

Concerns are increasing: We may see a spike in interest rates and, at the same time, a plunge in the prices of some commodities. It is surely worth making this possibility clear to potential homebuyers…because now, when rates are attractive and prices have stopped falling and the $8,000 and $6,500 tax credits for homebuyers are in place–now is surely a great time to buy a personal residence. And it isn’t necessarily a good bet to wait for a better time.

We hope homebuyers can understand this. Like you, we wish as many people will be able to take advantage of this incredible buyer’s market as possible.

Current interest rates are as follows:

30 year fixed conforming rates (for well qualified buyers who are purchasing a primary or secondary residence): 5% with no points.

Jumbo 5/1 ARMS with 30% down (primary residences) are 4% with no points up to $850,000. With 25% down, the interest rate on the 5/1 ARM is 5.25% (no points).

Steve Peterson

Branch Manager, Sierra Pacific Mortgage

Office: 888-232-7687 Cell: 775-219-7151 Fax: 866-649-3235

January 13, 2010

KEY INDICATORS

Gold $1129.10/ounce [up]Crude Oil (Brent) $79.00/brl [down]U.S. Dollar to… Euro .6900 [down] Japanese Yen 90.90 [down]6-mo Treasury Bill Yield 0.12%10-yr Treasury Note Yield 3.82%[6-mo down 3 bps, 10-yr up 7 bps]11^th Dist Cost of Funds 2.094%[+]30-yr Fixed-rate Mortgage 5.48%15-yr Fixed-rate Mortgage 4.94%1-yr ARM 4.50%[HSH averages rates: 30-yrdown 10 bps,15-yr down 9 bps; 1-yr ARM down 22 bps]

Mortgage Bankers Association Mortgage Applications Index week ending 1/1[Index plunged in week ending 12/25/09] Overall 462.2 (up 0.5%; down 22.8%the week prior) Purchase Money Loans 212.1 (up 3.6%; down 4.0% the week prior) Refinancing Loans 1976.9 (down 1.6%; down 30.5% the week prior)

Jobless Claims 1/2 434,000 – prior week 433,000 – continuing claims fell to 4.802 m

ISM Non-Mfg Index Dec Up from 48.7 to 50.1

Employment Report Dec 85,000 payroll jobs lost – unemployment remained at 10%

Weekly Commentary

A 10% unemployment rate understates actual unemployment because it doesn’t take into account the unemployed who have simply given up looking for work for the moment. A more accurate assessment is 17.3% unemployment.

This is grim, and it is chained to the current recovery like an anchor, keeping personal spending from rising significantly. It is worth noting, too, that personal bankruptcy filings rose by 32% in 2009. And worth noting that, with people combining their living spaces and moving in with family, the vacancy rate for apartments rose to 8% in 2009, a 30-year high. Landlords, in response, have thus far lowered rents by 3%.

In other words, we seem to be bouncing along the rocky bottom of this recession. Though we can detect a probable rising trend for the economy, the final results of the recession are far more visible to the naked eye. Speaking of rising trends, though, The Economist, the London newsweekly, noted this week that the unveiling of the new skyscraper in Dubai—the Burj Khalifa, now the world’s tallest building—was in keeping with past skyscrapers, which were “commissioned when money is cheap and optimism about economic growth is at its height,” but are “often finished when the champagne has gone flat.”

The Economist, along with other analysts, worries as well that the prices of many commodities are rising too high thanks to the cheapness of borrowed money today. Money is so inexpensive to borrow, remember, because of the support provided to the credit markets by the federal government. Last week, the 2-year Treasury note yield actually fell below 1%. No wonder banks have been slow to make riskier loans when they can borrow nearly-free money and take the gains from placing that money in nearly-risk-free investments.

But the risks are growing. The yield curve, if defined as the gap between the 2-year T-note and the 30-year T-bond rates, has never been this high before. That suggests something is going to snap.

“Interest rates will stay low only if growth remains slow,” The Economist observes. “But if economies grow slowly, then profits will not rise fast enough to justify current [stocks’] share prices…. If, on the other hand, the markets are right about the prospects for economic growth, and the current recovery is sustained, then governments will react by cutting off the supply of cheap money later this year.”

Either eventuality could disrupt the economy. We’ll watch closely.

30 year fixed conforming rates (assuming excellent credit, owner occupancy and 20% down for houses and 25% down for condos) are 5.125% with no points or 4.875% with 1 point.

Jumbo 5/1 ARMS with 30% down (primary residences) are 4% with no points up to $850,000. With 25% down, the interest rate on the 5/1 ARM is 5.25% (no points).

We have entered 2010–a New Year, a New Decade–but the New Year hasn’t taken off its New Year’s Eve costume just yet. We can’t understand current credit market moves with confidence and, as an obvious result, shouldn’t be trying to make short-term predictions, though we might be able to hazard the guess that longer-term, rates are rising and the economy is, in its lumpy way, recovering.

Still, it’s fun to speculate. I am imagining, very tentatively, that the recent Freddie Mac average 30-year fixed rate is a smidge higher than where it was a year ago because rates are in the process of rising and leaving behind the lows they enjoyed last year. Who knows. Could be, but I wouldn’t count on it–or anything–for a few weeks. We await further instructions from the markets about how to expect the short-term future to look.

Steve Peterson

Branch Manager

Sierra Pacific Mortgage

Office: 888-232-7687

Cell: 775-219-7151

Fax: 866-649-3235

January 6, 2010

KEY INDICATORS

Gold $1117.30/ounce [up]Crude Oil (Brent) $80.14/brl [up]U.S. Dollar to… Euro .6965 [down] Japanese Yen 91.66 [down]6-mo Treasury Bill Yield 0.15%10-yr Treasury Note Yield 3.75%[6-mo down 5 bps, 10-yr down 8 bps]11^th Dist Cost of Funds 2.094%[+]30-yr Fixed-rate Mortgage 5.58%15-yr Fixed-rate Mortgage 5.03%1-yr ARM 4.72%[HSH averages rates: 30-yrdown 1 bp,15-yr up 1 bp; 1-yr ARM up 19 bps]

Mortgage Bankers Association Mortgage Applications Index week ending 12/18[Next index report 1/6] Overall 595.8 (down 10.7%; up 0.3% the week prior) Purchase Money Loans 213.3 (down 11.6%; down 0.1% the week prior) Refinancing Loans 2889.9 (down 10.1%; up 0.9% the week prior)

Jobless Claims 12/26 432,000 – prior week 452,000 – continuing claims fell to 4.981 m

Construction Spending Nov Down 0.6%

ISM Manufacturing Index Dec Up from 53.6 to 55.9

Factory Orders Nov Up 1.1%

Weekly Commentary

The credit markets are doing their best to be incomprehensible. It’s a task at which they excel.

We should remain aware, though, that the markets go on a quiet annual binge of confusion every year at this time. Many players take a week or two off, thinning the ranks of investors. As a consequence, there was a concern, ultimately unfounded, that fewer bidders at last week’s auctions of 2-year, 5-year and 7-year Treasury notes would cause rates to rise but, buyers came from all over the world and there were between two and three bids for every T-note. Go figure.

The Freddie Mac average 30-year fixed rate, at 5.14%, moved up roughly ten more basis points last week from the week prior. (It’s measured Thursday through Thursday). A somewhat surprising benchmark: That 5.14% rate is actually four basis points higher than where the average rate stood one year ago. Why is that surprising? We have been looking for a long time at rates that were significantly lower than their year-prior counterparts. Twelve months ago, though, mortgage interest rates were declining to extremely attractive levels. Today, rates seem to be in the initial phases of a long trek north, and they may be leaving the territory pioneered a year ago.

But it’s not a good time to be making assumptions. The fact that our Treasury securities are selling so well at auction doesn’t erase the result—a vast, and growing, quantity of Treasury securities in the resale market. Demand for securities doesn’t always exceed such a massive supply, and we no longer have the Federal Reserve jumping into the markets to buy up excess securities. (That was crucial in pushing interest rates as low as they could go not long ago.)

Without this support, the markets must deal with the buying and selling of the currently huge supply of securities without governmental help. When there are more securities available than there is demand for them—as any student of supply and demand and of inflation knows—the prices will decline, which means their yields will rise. And that is the primary reason that Treasury securities seem to be in the midst of a rising trend.

It’s a trend, though, that could turn around on a moment’s notice—not the sort of thing you want to take to the bank. So we continue to watch very closely, especially the moves made by the 10-year Treasury note, in hopes that we just might know, maybe as quickly as the market knows, which way interest rates will eventually move in a sustainable fashion. Meanwhile, we eat up the leftovers from our holiday meals.