Existing Home Sales Surge

There were few major surprises in the economic news this week, and little
change in the stock market. While there was a great deal of daily
volatility, mortgage rates ended the week nearly unchanged. A flood of
housing market data was released during the week, and most of it reflected
improvement in the sector. The biggest unexpected news came from the
September Existing Home Sales report, which jumped 9% from August to the
highest level since July 2007. Inventories of unsold existing homes dropped
sharply to a 7.8-month supply from a 9.3-month supply in August. This marked
the lowest inventory levels in two and one-half years. September Housing
Starts remained at depressed levels, which removes pressure on future
inventory levels. Building Permits, a leading indicator, also held at low
levels. In short, home sales improved, while inventory levels moved lower
with a relatively light supply of new homes in coming months. If there is a
note of caution, though, it's that much of the activity has been spurred by
exceptionally low mortgage rates and the first-time homebuyer tax credit,
and the future is uncertain on both fronts. The Fed is scaling back its
purchases of mortgage-backed securities, which might push mortgage rates
gradually higher, and lawmakers are currently debating whether to extend the
first-time homebuyer tax credit.
The Mortgage Bankers Association (MBA) also released its forecasts for this
year and next. According to the MBA projections, purchase originations will
decline slightly in 2009, but will then increase by 12% in 2010. Similarly,
the MBA forecasts that existing home sales will rise by 11% in 2010. The
chief economist of the MBA suggested that the timing of the economic
recovery and the level of mortgage rates are the biggest variables
influencing the results for 2010.

Also Notable:
* September Core PPI inflation rose at a tame 1.8% annual rate
* The Fed's Beige Book reported modest improvement in "many sectors" of the
economy
* The Treasury will auction a record $116 billion in 2-yr, 5-yr, and 7-yr
securities next week
* The Fed purchased $18 billion in agency MBS during the week ending 10/21

Average 30 yr fixed rate:
Last week:
+0.15%

This week:
+0.01%

Stocks (weekly):
Dow:
10,000
+50
NASDAQ:
2,160
+10

  
Week Ahead
The final week of October will be packed with important economic data. The
most highly anticipated will be Thursday's release of third quarter Gross
Domestic Product (GDP), the broadest measure of economic activity. Durable
Orders, another major indicator of economic activity, will come out on
Tuesday. The New Home Sales report is scheduled for Wednesday. Chicago PMI,
Personal Income, and Core PCE inflation will be released on Friday. Consumer
Confidence and Consumer Sentiment will round out the busy week. In addition,
the Treasury will auction a record $116 billion in 2-yr, 5-yr, and 7-yr
securities on Tuesday, Wednesday, and Thursday.