Doing the Charleston!

Purchases of existing homes jumped 5.5% last month to a 5.18 million annual pace, the highest pace in a year. Of course, foreclosure-related sales played a large role in the increase, accounting for nearly 40% of last month's total. But 80% of the purchases were for primary residences and not for investment, suggesting the market is stabilizing. Sales figures for this month and next will be critical in determining whether sales are really beginning to climb from recent bottoms.

Market reports coming out Friday 10/31/08:

Personal Income & Outlays (September)	Fri, Oct 31, 8:30 am, et	Income: 0.1% (Increase) Outlays: 0.2% (Decrease)	Important. The decrease in outlays mirrors the recent decrease in retail sales, suggesting that the economy will contract heading into 2009.
National Association of Purchasing Managers Index (October)	Fri, Oct 31, 9.15 am, et	52 Index	Important. Manufacturers expect to expand, which means pockets of economic strength persist.

Wall Street too is more upbeat Thursday, after a government report showed the economy contracted less in the third quarter than expected. Stock indexes jumped more than 1.5 %, with the Dow Jones industrials rising 150 points, after the report was released this morning and after the Federal Reserve cut interest rates for the second time this month.

Lower rates are appreciated, to be sure, but only if lenders are willing to lend – and that's still the bugaboo of this market. Fed Chairman Ben Bernanke acknowledged as much earlier this month when he noted that even households with “good credit” were finding it difficult to get mortgages. Simply put, banks are hoarding cash, and the influx of government money – from the recently approved $700 billion bailout – won't necessarily stop the hoarding.

The defensive posture banks have adopted is creating a quandary for the Fed, the Treasury Department, and Washington policymakers, all of whom are trying to prime the credit-flow pump. There are small signs of improvement – notably a modest drop in the rate banks charge one another to borrow money. But, banks must loosen their purse strings in order to stop the sputtering in the housing and mortgage markets.

Some information above is courtesy of Melissa Breeland of Residential Mortgage of SC.

*** Due to market fluctuations, interest rates are subject to change at any time and without notice. Interest rates are also subject to credit and property approval based on secondary market guidelines. The rates shown are based on average rates for the best qualified customers. Your individual rate may vary. Residential Mortgage has access to hundreds of loan programs. The programs and rates listed here are just the most popular.

Above information is courtesy of Melissa Breeland of Residential Mortgage of SC

This week's reports and their significance:

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Leading Indicators (September)	Mon. Oct 20, 10:00 am, et	0.3% (Decrease)	Moderately Important. The indicators offer more proof that the economy is moving toward a recession.
State Street Investor Confidence Indicator (October)	Tues. Oct 21, 10:00 am, et	65 Index	Moderately Important. Confidence is expected to crater with the stock market's recent performance.
Mortgage Applications	Wed. Oct 22, 7:00 am, et	None	Important. The pop in rates last week is expected to slow application activity.
Existing Home Sales (September)	Fri. Oct 24, 10:00 am, et	4.88 Million (Annualized)	Important. Sales are expected to show a slight decline, but lower prices are slowing the downward trend.

Copious stock losses coupled with grinding losses in home values means more people are feeling a heck of a lot poorer these days.

Fortunately, the problem – jammed credit markets – is being worked. Central banks around the globe cut interest rates Wednesday in a coordinated move. The Federal Reserve lowered its federal funds rate – a benchmark rate for short-term lending – a half point to 1.50%. Meanwhile, central banks in the United Kingdom , European Union , Switzerland , Sweden , China , and Canada trimmed lending rates as well.

The Fed's rate cuts follow a string of innovative actions in recent days. On Monday, the U.S. central bank said it would pay interest on bank reserves. On Tuesday, the Fed said it was creating a special facility to support the commercial paper market, a wellspring for funding the day-to-day operations of many businesses.

The Treasury Department is also upping the innovation ante by considering taking ownership stakes in many U.S. banks. Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to increase lending.

Unfortunately, the lack of immediate improvement is frustrating capital markets. While the financial turmoil is clearly expressed in global equities markets, the root of the problem remains the interbank market, where tensions remain high. Banks are still too nervous to lend freely to one another, and that's causing credit markets around the world to seize.

MARKET RECAP

What should have been a sure thing last week turned out to be a sure thing this week. We are referring to the $700 billion financial-market rescue package, which the House of Representatives unexpectedly nixed last week on a 229 to 205 vote, sending equity and credit markets into a tailspin. The Senate then stepped in, larded the package with porcine inducements, and then sent it back to the House for another vote. Fortunately, the House gave the amended package a collective thumbs up and sent it to the President for his signature.

The good news is the core of the package remains intact – the Treasury Department will have $700 billion at its disposal to purchase bad mortgage-related securities that are weighing down the balance sheets of the institutions that hold them. The purchases should help improve the flow of credit, which is freezing fast, threatening not only consumers’ ability to make purchases but businesses’ ability to conduct routine operations. And the last thing we need is a new threat to business operations; employers cut the most jobs in five years in September, eliminating 159,000 jobs and sending the unemployment rate up to 6.1%.

Unemployment rates weren't the only thing rising last week. Mortgage rates continued their push higher too, erasing half the improvements realized after the feds put Fannie Mae and Freddie Mac in conservatorship. The higher rates reflect an increasing unwillingness among lenders to lend money, and that's not good.