From our President

>> Market Update

INFO THAT HITS US WHERE WE LIVE Last week September New Home Sales were reported down 3.6% for single-family units. But the supply of unsold new homes is just 7.5 months and inventories, at 251,000, are down 56.1% from their mid-2006 peak and at their lowest level since 1982. The sales drop followed five straight months of sales increases and some observers felt the decline may have come from more aggressive pricing by sellers, actually a bullish sign for the housing market.

Indeed, the median new home price was UP 2.5% for September, a bigger than usual gain for the time of year. The average price went UP 10.2%, the biggest September rise on record. Finally, the average price of new homes sold -- $282,600 -- was only 1.6% lower than last year. Speaking of prices, the Case-Shiller index reported home prices up in August for the fourth month in a row. The average of the 20 metro areas measured showed a 1.2% gain.

Finally, we had the good news covered in last week's Inside Lending Bulletin that the Senate passed an extension of the first-time homebuyer $8000 tax credit, with higher qualifying income limits and adding a $6500 credit to buyers who have owned their homes at least 5 years. Let's hope the House passes it too. Finally, the House and Senate extended the ability of Fannie Mae, Freddie Mac and the Federal Housing Administration to back conforming loans in high-cost areas, up to $729,750 through all of 2010. These higher limits would have expired at the end of this year.

>> Review of Last Week

CAUTIOUSLY RECOVERING... The government reported our first quarter of positive economic growth last week, indicating the recovery has begun. Yet investors kept the Dow moving up and down over 100 points four out of the five days, ending the week with a startling 249-point drop. Was this a bull market correction, or the return to a bear market? Who knows? The only thing certain is that investors aren't quite sure the economy is back on track.

Makes you wonder what it will take to convince them. The initial estimate for Q3 real GDP revealed the economy growing at a 3.5% annual rate -- way better than expected and the first rise in GDP in over a year. Happily, most of the advance was driven by consumption. Q3 GDP also showed home building UP at a 23.3% annual rate, its fastest rise since the '80's. Plus, Q3 corporate earnings reported so far show over 80% of the companies beating estimates, the highest rate in history.

On the jobs front, Initial Unemployment Claims dropped and the 4-week moving average hit a new low in the recovery of 526,000. Continuing Claims fell to 5.8 million. Positive news also included Durable Goods Orders UP for September, their fourth boost in six months. Most impressive of all, the Chicago PMI measuring Midwest manufacturing, shot up to its highest level in over a year. And the Richmond Fed index for Mid-Atlantic manufacturing logged its sixth straight month in expansion territory. All are favorable signs for U.S. manufacturing.

For the week, the Dow finished down 2.6%, to 9712.73; the S&P 500 was down 4.0%, to 1036.19; while the Nasdaq fell 5.1%, to 2045.11.

The bond market closed the week with a rally, helped in no small measure by the slide in stocks. The FNMA 30-year 4.5% bond we watch ended up from the previous week's close, finishing at $101.19. Mortgage rates inched up a bit but remain in historically low territory. For this year, the Freddie Mac survey of mortgage rates reported its lowest 10-month average going back to 1971.

>> This Week’s Forecast

FOCUS ON THE FED... Almost no one expects a rate change coming out of this week's Fed meeting, but economists will be looking at the Fed policy statement for any signs of when things may change. Other items of interest this week include Pending Home Sales on Monday and Friday's Employment Report, where we'll search for signs of a turnaround on the jobs front.

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months. With Q3 GDP showing the economy growing again, the big question is, when will the Fed start raising rates? Most economists think rates will stay down for a few months more, unless inflation bubbles up.

It's almost official: the new home buyer tax credit pass both the Senate and House, and is awaiting President Obama's signature. If you're a first time home buyer, you'll have into 2010 to take advantage of the federal tax credit. If you've already a home owner and have owned your home for five years or more, there's a credit for you as well if you purchase a replacement property in the next few months. Find out more about the 2010 Home Buyer Tax Credit.

The national real estate market sure is active! NAR released it's pending home sales data for September 2009 and the numbers are looking good. The index increased 6.1% from September to August and is 21.2% higher than September 2008. That’s the largest year-over-year increase and the longest streak of consecutive month-over-month increases since NAR began the pending home sales index in 2001.

Short sales are complex transactions. Much of the public, attracted to short sales and bank-owned properties by the prospect of getting a bargain, doesn't know the shocking truth about the short sale timeline: it can take weeks, even months before the seller's lender reviews and approves a submitted offer. What's more, the listing agent is under no obligation to present the offer to the lender for approval.

Many buyer representatives don't realize this last fact, stemming from a mis-understanding of the difference between short sales and bank-owned (REO) transactions, and insist that short sale offers be presented to the lender. In a short sale, the borrower is still the owner of the property and the listing agent owes fiduciary duties to the borrower, not to the lender. The listing agent is obliged to forward to the lender only those offers that the seller-borrower finds acceptable for personal reasons. As a third party approver, the lender is not party to the transaction between buyer and seller.

This article sums it up nicely:

A short sale is a completely volunatry attempt by a borrower to avoid a foreclosure -- a borrower does not have to opt for a short sale. That being the case, how could it be said that a lender has a right to be presented an offer?

If you're the President of a major Massachusetts university, you definitely get to live in style. Cambridge can boast of three such university-owned presidential mansions. Check them out, and others, in this slide show.