Steve Papapietro's Mortgage Bulletin: For the Week of Nov 2nd

LAST WEEK IN REVIEW "Don't believe the hype!" The words from Public Enemy's hit song title rang true once again last week when the Commerce Department reported the Gross Domestic Product (GDP) for the 3rd Quarter. As you can see from the chart below, GDP rose by 3.5% for the first gain in a year and the strongest reading in two years. While most media outlets were giddy about the news and started the hype that the recession is behind us, it's important to remember that there's more to the economic data than just the headlines. The temporary "Cash for Clunkers" program has now expired, but was a big part of last quarter's GDP gain. If we remove it from the total, the reading would have been a more modest 1.9%. But there is even more to the rise in the latest GDP number that is just temporary... Also bolstering the economy has been the $8,000 first-time homebuyer tax credit - which is set to expire at the end of this month. Many home buyers have been taking advantage of this program - and wisely so. ----------------------- Chart: US Gross Domestic Product (By Quarter) New Home Sales were reported last week, showing a 7.5-month supply of inventory. While that number is slightly worse than last month's 7.3 reading, it's still a big improvement from where we were in January. Back in January, inventory levels reached a high of 12.4-month supply! The improvement in housing inventories has been due in large part to the $8,000 First Time Homebuyer Tax Credit, which is set to expire on November 30. There is a real possibility of an extension of this program through a proposed Bill, but it is not yet a certainty. The extension Bill still must be reconciled between the House and Senate, and then voted on for final approval. Under the current extension proposal, sales with signed purchase agreements by April 30th that close before June 30th, 2010 would qualify for the credit. Another positive element would be the possible addition of $6,500 tax credit for other primary home purchasers, meaning the tax credit would no longer be limited only to first-time homebuyers. There is also a possibility that qualifying income limits could increase from $75,000 to $125,000 for singles, and from $150,000 to $250,000 for joint tax filers. I will be keeping an eye on this for you, so stay tuned. After all last week's news and movement in the markets, Bonds and rates ended the week slightly better than where they began. DON'T FORGET: THIS WEEKEND MARKS THE END OF DAYLIGHT SAVING TIME. SO MAKE SURE YOU SET YOUR CLOCKS BACK TO AVOID UNEXPECTED PROBLEMS...LIKE THE KIND DESCRIBED IN THE MORTGAGE MARKET GUIDE VIEW ARTICLE BELOW!

FORECAST FOR THE WEEK

	This week brings us new employment numbers...and a chance to see if the labor market is showing signs of recovery. The employment news begins Wednesday with the ADP National Employment Report. Sandwiched between that report and Friday's Jobs Report, is the Initial Jobless Claims report on Thursday. The big news comes on Friday, when the all-important Jobs Report will be released. Last month's report underscored the struggling labor market, as the Labor Department reported 263,000 jobs lost in September and an increase in the unemployment rate to 9.8%. The report due out this week is expected to show 166,000 jobs lost in October, which would be significantly better than the previous month if it happens. However, the Unemployment Rate is expected to continue its climb to 9.9%. In addition to employment news, we'll also see the ISM Index on Monday. This is the king of all manufacturing indices and is considered the single best snapshot of the factory sector. Finally, the Federal Open Market Committee (FOMC) holds its two-day meeting this week, with an announcement of the Fed Rate Decision and Policy Statement due on Wednesday at 2:15 p.m. (ET). 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 were able to bounce back last week with help from weakness in the Stock markets. Chart: Fannie Mae 4.5%% Mortgage Bond (Friday Oct 30, 2009)

THE MORTGAGE MARKET VIEW

	Turning Back the Hands of Time This weekend, the sun set on another season of Daylight Saving Time. The extra daylight we now enjoy was actually the result of the Energy Policy Act, which was enacted by Congress back in 2005. But did you know that throughout its long history, Daylight Saving Time has had a remarkable and sometimes unexpected impact? A man was actually able to avoid the draft for the Vietnam War using a Daylight Saving Time loophole. When he was born, it was just after midnight, DST. When he was drafted, he successfully argued that in his home state of Delaware, standard time - not DST - was the official time for recording births. So he was technically born on the previous date--which had a much higher draft lottery number - and he was able to avoid being drafted. In September 1999, the West Bank was on Daylight Saving Time, while Israel had switched back to standard time. A group of West Bank terrorists prepared some timed bombs - but misunderstood the time change - and the bombs exploded early, killing the terrorists themselves, rather than the intended victims - two busloads of innocent citizens. In the 1950s and 60s, each state and locality was permitted to choose start and end DST dates as they desired. During 1965, Minneapolis and St. Paul - which are considered one metropolitan area - didn't agree on start dates, and for a period of time, these Twin Cities had a one hour time change between them. And on one Ohio to Virginia bus route, passengers technically had to change their watches seven times in 35 miles! To keep to their published timetables, Amtrak trains cannot leave a station before the scheduled time. So when the clocks "fall back" in the fall, all trains that are running on time actually stop at 2 am - the official time of DST change - and wait one hour before resuming their routes. In the spring, the routes instantaneously become one hour behind schedule, but they just keep going and do their best to make up the time. So Daylight Saving Time sure can have some unexpected impact. As we enter the first week of Daylight Saving Time, be sure to double-check all of your electronic devices and confirm that the time is correct. Although you may be accustomed to your computer and maybe even your digital clock in your car automatically updating, the recent change of dates for Daylight Saving Time may require that these devices be manually changed, as they now may NOT be ready to update to the correct time on the correct date!

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 November 02 - November 06 Date ET Economic Report For Estimate Actual Prior Impact Mon. November 02 10:00 ISM Index Oct 53.0 52.6 HIGH Mon. November 02 10:00 Pending Home Sales Sept 0.4% 6.4% Moderate Wed. November 04 10:30 Crude Inventories 10/30 NA 0.78M Moderate Wed. November 04 08:15 ADP National Employment Report Oct -190K -254K HIGH Wed. November 04 02:15 FOMC Meeting 11/4 unch .25% HIGH Wed. November 04 10:00 ISM Services Index Oct 51.5 50.9 Moderate Thu. November 05 08:30 Productivity Q3 5.8% 6.6% Moderate Thu. November 05 08:30 Jobless Claims (Initial) 10/31 520K 530K Moderate Fri. November 06 08:30 Average Work Week Oct 33.1 33.0 HIGH Fri. November 06 08:30 Hourly Earnings Oct 0.1% 0.1% HIGH Fri. November 06 08:30 Non-farm Payrolls Oct -175K -263K HIGH Fri. November 06 08:30 Unemployment Rate Oct 9.9% 9.8% HIGH

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