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Mindy Budweg

From: Bill Fanning [fanning@21waterfront.com]

Sent: Monday, January 31, 2011 11:32 AM

To: 'Mindy Budweg'

Subject: FW: Inside Lending Newsletter From Greg Templeton


Bill Fanning

NOTICE: This e-mail may contain confidential or privileged material and is intended for use solely by the above-referenced recipient. Any review,

copying, printing, disclosure, distribution, or other use by any other person or entity is strictly prohibited. If you are not the named recipient, or believe you have received this e-mail in error, please reply to the sender and delete the copy you received. Thank you.

From: Greg Templeton [mailto:greg.templeton@sterlingsavings.com] Sent: Monday, January 31, 2011 10:39 AM

To: fanning@21waterfront.com

Subject: Inside Lending Newsletter From Greg Templeton

email me now

Greg Templeton Senior Loan Officer

111 W North River Drive, Suite 100 Spokane, WA 99201

Office: 509.924.8100 Mobile: 509.362.4282 Fax: 509.924.8162

For the week of January 31, 2011 – Vol. 9, Issue 5

>> Market Update

INFO THAT HITS US WHERE WE LIVE... Last week was packed with housing market data and the news does keep getting better even though the media hasn't caught on quite yet. Wednesday saw December New Home Sales UP 17.5%, blowing away forecasts with a 329,000 annual rate. The supply of new homes dropped to 6.9 months and the new homes inventory slid to 190,000, down 66.8% from its 2006 peak and at the lowest level since 1968. More good news came with an 8.5% boost in the median home price versus a year ago, to $241,500, its highest level since April 2008. The average home price registered a 4.7% gain compared to a year ago.


Speaking of prices, the Case-Shiller home price index for the 20 largest metro areas was down 0.5% in November, better than expected. Although prices are off 1.6% in the past year, they're still up 1.2% from the low they hit in May 2009. Inspired by the November slip, pundits fretted about a possible "double dip" in housing prices. But a chart of the

Case-Shiller index for the 10 largest metro areas shows the trend in prices, adjusted for inflation, is essentially flat, perhaps rising a bit, since early last year. And the

nominal value of the index is almost 5% ABOVE its April 2009 low. A rational mind might conclude housing prices have finally bottomed, 5 years after hitting their peak. Buyers are supporting this notion, sending Pending Home Sales, tracking contracts signed on existing homes, UP 2.0% in December. This report has now had three strong months in a row, so existing homes sales, tracking actual closings, should stay on the increase in January.

>> Review of Last Week

LET'S NOT GET CARRIED AWAY... Just as we were all set to celebrate an eight-week winning streak for the stock market, Friday treated us to the biggest one-day drop in months, with the Dow falling 166 points on fears over Egyptian unrest. As oil prices rose, investors seeking safety sold off their equity positions, but losses were modest in the end. All three major indexes were down for the week by half a percent or less. The economic data keeps offering encouragement, but Wall Street always first looks to corporate earnings to gauge how we're doing. Last week saw 14 Dow components reporting Q4 numbers and 11 of them did better than expected. Some missed their revenue targets and issued lukewarm guidance going forward. But overall, the

corporate earnings picture continues to show a preponderance of strong performances in spite of the slow rate of economic recovery.

Durable Goods Orders were down in December but this was almost all due to a drop in volatile civilian aircraft. Orders for "core" capital goods are actually UP two months in a row. Weekly initial jobless claims were up, but they included the prior week's claims that were delayed by snowstorms in the South. Housing showed the upbeat signs

mentioned above. Best of all, the first estimate for Q4 GDP came in at a 3.2% annual growth rate. This was a little lower than expected, but exports were super strong and consumer spending was UP a very healthy 4.4% annually, its fastest rate in almost five years.

For the week, the Dow ended down 0.4%, at 11824; the S&P 500 was off 0.5%, to 1276; but the Nasdaq dropped just 0.1%, ending at 2687.

Bonds prices were helped by some well-received auctions Wednesday and Thursday, followed by the flight to safety on Friday, courtesy of falling stocks. The FNMA 4.0% bond we watch ended UP 78 basis points for the week, closing at $99.09. This bodes well for


mortgage rates, although Freddie Mac's weekly survey of conforming mortgages reported average fixed-rate mortgage rates inching up slightly, thanks to the strengthening economy. Still, mortgage rates do remain at super low levels.

>> This Week’s Forecast

FOCUSING ON WHAT THE FED FOCUSES ON... The Fed has a dual mandate of controlling inflation and supporting job growth. What happens with the Fed Funds Rate depends on what's going on in those two areas, which bracket this week's economic news. Monday, we get the Fed's favorite inflation gauge, Core PCE Prices, expected to stay well under control. Friday's January Employment Report is forecast to add 150,000 jobs, which is all to the good, but not enough to prevent the unemployment rate from edging up a tad as the workforce grows.

Other key economic indicators include Monday's Chicago PMI take on Midwest manufacturing, Tuesday's ISM manufacturing index and Thursday's ISM services

index. All are expected to continue to show expansion, with readings over 50.

>> 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 January 31 – February 4

Date Time

(ET) Release For Consensus Prior Impact


Jan 31 08:30 Personal Income Dec 0.5% 0.3% Moderate


Jan 31 08:30 Personal Spending Dec 0.6% 0.4% HIGH


Jan 31 08:30 PCE Prices - Core Dec 0.1% 0.1% HIGH


Jan 31 09:45 Chicago PMI Jan 65.0 66.8 HIGH


Feb 1 10:00 ISM Index Jan 58.2 58.5 HIGH


Feb 2 10:30 Crude Inventories 1/29 NA 4.84M Moderate


Feb 3 08:30 Initial Unemployment Claims 1/29 425K 454K Moderate


Feb 3


Feb 3 08:30 Productivity-Prelim. Q4 2.2% 2.3% Moderate


Feb 3 10:00 ISM Services Index Jan 57.0 57.1 Moderate


Feb 4 08:30 Average Workweek Jan 34.3 34.3 HIGH


Feb 4 08:30 Hourly Earnings Jan 0.2% 0.1% HIGH


Feb 4 08:30 Nonfarm Payrolls Jan 150K 103K HIGH


Feb 4 08:30 Unemployment Rate Jan 9.6% 9.4% HIGH

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months The Fed's statement coming out of last week's meeting continued to tout their view that the Funds Rate needs to stay at its rock bottom level until the recovery picks up considerably. This

week's economic reports shouldn't inspire the Fed to hike the Rate any time soon. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate:


After FOMC meeting



Mar 15


Apr 27


Jun 22


Probability of change from current policy:

After FOMC meeting



Mar 15


Apr 27


Jun 22



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of its accuracy. The material contained in the newsletter is the property of Sterling Savings Bank-Home Loan Division and cannot be reproduced for any use without prior written consent. It is designed for real

estate and other financial professionals only. It is not intended for consumer distribution. The material does not represent the opinion of Sterling Savings Bank-Home Loan Division. Member FDIC. This email was sent to fanning@21waterfront.com.

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