Prospective Homebuyers May Want to Stop Thinking and Start Acting

IT'S THE THOUGHT THAT COUNTS...OR IS IT? As we look back at last week, think about this for starters - the housing industry received some welcome good news, as Existing Home Sales came in better than anticipated, and marking the third straight month that Existing Home Sales have increased. And perhaps even better, the supply of unsold homes on the market dropped from the prior reading of 9.8 months down to 9.4 months - which is the best level seen in over a year. With home loan rates still at low levels and homes priced to sell - this is a great time for potential homebuyers to stop thinking, and go ahead and take some action.

Despite that bright spot of news, last week's Consumer Sentiment report - which measures consumers' attitudes and expectations concerning both present and future economic conditions - showed that consumers still think the economy has a ways to go, as the report did come in a bit weaker than anticipated. According to the report last week, Consumer Sentiment came in at 66 for the month of July, down from June's reading of 70.8. Take a look at the chart below for an interesting historical perspective on this report.

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Chart: Consumer Sentiment (University of Michigan)

And one of the major reasons for the decline in Consumer Sentiment was ongoing concern over unemployment - and last week, Initial Jobless Claims reportedly rose by 554,000. While this number was high, it was essentially in-line with expectations of 557,000.

The big news that many headlines featured was the number of Continuing Claims, which fell from 6.31 million the prior week to 6.22 million. And although this drop was reported as positive news, we need to remember that a large number of people are still unable to find jobs, but are no longer being counted in Continuing Claims because their unemployment benefits have expired. The bottom line is that it will be hard for the economy to really turn higher with momentum until the labor market starts to turn around.

Stocks had a good week, with the Dow closing above 9,000 on Thursday for the first time since January 6th, as well as finishing the week with its strongest two-week span for blue chips since 2000. Since Stocks moving higher can drain money away from Bonds, the rally in Stocks - combined with the announcement of next week's Treasury's auction of $115 Billion in Notes - put selling pressure on Bonds toward the end of the week. Despite some volatile mid-week action, home loan rates closed out the week near the level where they had begun the week.

SPEAKING OF TAKING ACTION...IF YOU'VE BEEN THINKING ABOUT GOING BACK TO SCHOOL TO IMPROVE YOUR MARKETABILITY OR RETRAIN FOR A NEW CAREER, CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW FOR TIPS ON HOW ADULTS CAN GET FREE MONEY FOR SCHOOL.

Forecast for the Week

After a heavy dose of corporate earnings reports for the past few weeks, the week ahead will hold quite a few economic reports for traders to chew on. This week starts off with a report on New Home Sales, which is expected to rise modestly from June's reading of 342,000 to 355,000. Particularly following last week's decent Existing Home Sales Report - this will be one to watch closely.

Production and manufacturing will also be big headlines in the news this week. Durable Goods Orders, which is considered a leading indicator of manufacturing activity, could move the market mid-week - while Gross Domestic Product (GDP), which measures the total production and consumption of goods and services in the US, is due at the end of the week. The GDP read is expected to come in at -1.5% for the second quarter, which would mark an improvement over the previous quarter's reading of -5.5%. The Chicago Purchasing Managers Index is also due out at the end of the week, and although this report only surveys 200 purchasing managers in the Chicago area, it's used by traders to help predict the more important national Institute of Supply Managers Report, which is a leading indicator of economic health.

The Employment Cost Index rounds out the week, which gives an indication of total labor costs - and it has the potential to move the markets if it doesn't come in close to last quarter's reading of 0.3%. What industry experts are really looking for in this report are wage trends that indicate wage inflation and price pressures...and given the continued weakness in the labor market combined with fears of future inflation, you can bet Traders will be keyed in on this report.

Finally, the markets may be impacted by the Treasury Department's auction of $115 Billion in Notes this week. This auction was just announced last week and will be held in addition to the $90 Billion worth of T-Bills that are usually auctioned on a weekly basis. Just the announcement of the auction weighed on the entire Bond market last week, and could continue to be a factor this week depending on how well the additional supply hitting the market is received.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, Mortgage Bonds traded higher early last week, but were pushed lower last Thursday after the Treasury announced a record $115 Billion in auctions.

Chart: Fannie Mae 4.5% Mortgage Bond (Friday Jul 24, 2009)

The Mortgage Market View...

Go Back to School...For Free!

As unemployment rises, many adults are heading back to the classroom to retool their skills or learn about new industries. Here are some great tips for getting that education for free.

Scholarships...

Many scholarships don't have age limits, which makes anyone eligible to apply. Check out www.Fastweb.com and www.SuperCollege.com to search for available scholarships.

Professional and Trade Organizations...

Local and national professional and trade organizations often offer grants and scholarships. For instance, The San Diego Foundation (http://www.sdfoundation.org/grant/) has several scholarships for adults. Begin by doing an Internet search for your particular locale and specialty. You can also contact your local Chamber of Commerce to see if they have any information on local grants and scholarships.

Colleges and Universities...

Many schools offer scholarships created especially for adults who are returning to school. Check a school's individual Web site or contact the admissions office for details.

The Government...

Individual states may also provide grants to help people attend re-training programs that they sponsor. Information and links can be found at www.careeronestop.org. In addition, the Obama administration has launched www.opportunity.gov to help unemployed adults return to college. The site includes information on a variety of federal student aid programs.

Employers...

A large number of employers still offer tuition assistance, especially if you can show how the educational program will help your job performance. For adults who want to return to school while they are still working, this is another avenue to consider.

The Bottom Line...

With a little research and a little effort, returning to school may be a whole lot easier...and a whole lot cheaper...than you think!

The Week's Economic Indicator Calendar

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of July 27 - July 31