Update #2/ Week of June 21, 2010 (Ara Melkonians)

Good Afternoon Everyone and Happy Tuesday! Yesterday we extended our streak of 100+ point moves on the Dow when the Index went from plus nearly 150 points at it’s high early in the session, to close with a loss of 8 points. The NASDAQ ended with a surprising loss of 21 points or nearly 1%. Stock traders must be frustrated as the first ½ of the year comes to a close in just 7 trading sessions and they don’t have much to show for 6 months of work thus far. In fact, the S&P is 1 point below where it started 2010 back on Jan 1. The Dow has gained a whopping 27 points in that same period of time. Not very impressive.

Today’s housing report from the Nat’l Association of Realtors isn’t doing much to help rally stocks, either. We learned this morning that existing home sales actually dropped 2.2% in May surprising economists who were expecting a 6% rise! Now that was quite a miss! On an annualized basis, analysts were expecting a rate of 6.1M and reality came in at 5.66M last month. We were supposed to have some follow thru from the tax incentive that expired at the end of April, but apparently that was not the case. This does not bode well for June’s numbers and the subsequent months ahead.

The silver lining in this story is that inventories of unsold homes dropped 3.4% to 3.89M – this represents an 8.3 month supply at May’s sales pace. However, we know that banks are holding on to thousands (and literally upon thousands) of homes yet to be released into the market place. Another happy part of the story is the median sales price for May was 179K . . . up 2.7% from May of 2009. Also, in a different report, the House Price Index for April showed an increase of .8% from the previous month, when the experts were looking for a rise of .3%.

Discussions this morning on CNBC and around the offices of mortgage and real estate firms ought to be concerning home prices for the remainder of 2010. With 450K consumers bailing on their loan modification, a new wave of adjustable mortgages maturing this year and no tax incentive . . . what will happen with foreclosures the 2nd half of this year. And . . . how will that impact home prices? Are we in for a double dip? The magic 8 ball says, “maybe so.” MI companies seem to be betting that prices will not drop significantly, but the guy on CNBC this morning said maybe 10%, maybe 25% further drop. That would be bad.

I am in the office all day today and available for your pricing or loan scenario questions. The results of a 2 year Treasury auction will be released today. We’ll see if this has any impact on pricing. We are about where we were on Friday with our rates today. Rates are holding steady. J Have a terrific Tuesday!