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Economic Update: 10-12-2014


Economic Update for Week Ending October 11, 2014

Mortgage Rates were down for the 3rd straight week. The average rate for a 30-year fixed-rate mortgage fell to 4.12% in the week that ended Oct. 9, hitting the lowest rate in a month and close to the lowest level in 2014, from the prior week’s reading of 4.19%, according to Thursdays report. Fixed mortgage rates were down on a week filled with bleak forward projections from the Federal Reserve and concern over growth in Europe. A year ago, the 30-year rate was at 4.23%. Rates have fallen even though the Federal Reserve has been trimming its monthly bond purchases, which are intended to keep long-term borrowing rates low. The purchases are set to end next month. Yet Fed officials have indicated that they will continue to hold shorter-term rates at near-zero levels until there are signs of rising inflation.

Friday we say the 30-year fixed-rate mortgage breach the psychologically-important rate of 4%, falling to 3.96%, down 12 basis points from a week earlier.

The average rate for the 15-year fixed-rate mortgage fell to 3.30% in the latest week from 3.36% in the prior week. Bond yields around the world fell on Thursday, with the US 10-year Treasury bond falling to 2.28%, its lowest level since June 2013. Meanwhile, the rate for a 5-year Treasury-indexed hybrid adjustable-rate mortgage also declined to 3.05% from 3.06%. The rate for a 1-year Treasury-indexed ARM remained at 2.42%.

The benchmark US 10 year Treasury Bond yields dropped this week closing Friday at 2.31% . It was 2.45% last Friday. Home mortgage rates follow bond yields.

Internationally, yields also fell as investors are now getting negative yields from German bonds out to three years, while the Swiss 10-year bond fell to within about 4 basis points, or 0.04%, of its all-time record low of 0.36% touched back in 2012.

Earlier this year economic leaders such as Federal Reserve Chairwoman Janet Yellen and Robert Shiller said they expected low rates (the average rate for a 30-year fixed-rate mortgage in 2014 has been far less than a 20-year mean of more than 6%), to serve as a stimulus to home buying. But 2014’s home sales have been hit by poor weather, a low number of homes available for sale and tight credit.

The major stock market indexes saw their worst week since May 2012. The Dow dropped 465.96 points ending the week down 2.7% closing Friday at 16544.10. The S&P500 closed Friday at 1906.13 down 61.77 points which was a 3.1% drop. The Nasdaq dropped 4.5% this week to 4267.24, off 199.39 points.

Stocks dropped again on Friday after markets had a rough day on Thursday, with the Dow falling more than 300 points Thursday and each of major stock indexes giving up all of their gains from Wednesday’s huge rally while bond yields fell around the world as the US 10-year Treasury bond fell to its lowest level in 15 months.

Fears of the world wide economy sparked this sell off. Thursday, Germany, which has been a bright spot in the European economy reported its largest monthly drop in exports in 5 years. The International Monetary Fund downgraded its forecast for global growth as well on Thursday. Also on Thursday the US had its first death of an Ebola victim and a police officer that had come into contact with him had checked into a Texas hospital with Ebola like symptoms. Later in the evening it was determined that he did not have Ebola.

The price of crude oil also fell further, moving below $86 a barrel for the first time since 2012, as the broader commodity sector continues to get crushed. Precious metals including gold and silver rallied on Thursday, with both gaining more than 1.5%.

The sector that came under serious pressure on Thursday was energy stocks, particularly coal stocks, with a number of companies in that sector falling more than 6%. Leading losses for coal stocks was Walter Energy, which lost more than 11%, as that company has seen its market cap fall from more than $1 billion at the beginning of the year to about $100 million now, a more than 90% decline.

Initial Jobless Claims Fall To Lowest Level Since February 2006. The weekly report on initial jobless claims beat expectations. Expectations were for claims to rise slightly to 295,000, up from last week’s 287,000. Last week’s report was revised up slightly to 288,000. The 4-week moving average of claims fell to 287,750, down 7,250 from last week, the lowest 4-week moving average since February 4, 2006. ” The downward trend continues; expect strong payrolls in Q4,” said Ian Shepherdson at Pantheon Macro following the report. “With the pace of firings exceptionally low, and surveys signaling robust hiring, we have to expect very strong payroll growth in Q4, at least.” Claims are unlikely to fall much further, but equally we see no reason to expect a near-term rebound.
C.A.R. Releases Its 2015 California Housing Market Forecast. The 2015 California Housing Market Forecast by the CAR said to expect an increase in existing home salesof 5.8 percent next year to reach 402,500 units, up from the projected 2014 sales figure of 380,500 homes sold, according to a statement from the association.

Sales in 2014 will be down 8.2 percent from the 414,300 existing single-family homes sold in 2013. “We are transitioning into a slower price appreciation environment,” said Appleton-Young. The real estate scene going forward may seem dull, but is characteristic of a market that hit a tipping point after the rocket ride of 2013. Median home prices rose 27.5 percent. Investors swooped in, scooping up foreclosure stock. Inventory was crimped. Cash was king.

That dynamic has significantly impacted housing affordability in California and forced some buyers to delay their home purchase, association president Kevin Brown said. Any slow-down in price gains will help would-be buyers get into the market. “I don’t think it’s out of the question that within two years from now we could see some declines or retreats in terms of prices,” Appleton-Young said.

California’s housing market will see fewer investors and a return to traditional home buyers as home sales rise modestly and prices flatten out in 2015. The average for 30-year fixed mortgage interest rates will rise only slightly to 4.5 percent but will still remain at historically low levels. The California median home price is forecast to increase 5.2 percentto $478,700 in 2015, following a projected 11.8 percent increase in 2014 to $455,000. This is the slowest rate of price appreciation in four years.

“With the U.S. economy expected to grow more robustly than it has in the past five years and housing inventory continuing to improve, California housing sales and prices will see a modest upward trend in 2015,” said CAR VP and Chief Economist Leslie Appleton-Young. “While the Fed will likely end its quantitative easing program by the end of this year, it has had minimal impact on interest rates, which should only inch up slightly and remain low throughout 2015. This should help moderate the decline in housing affordability we saw occur over the past two years.”

C.A.R.’s forecast projects growth in the U.S. Gross Domestic Product of 3 percent in 2015, after a projected gain of 2.2 percent in 2014. With nonfarm job growth of 2.2 percent in California, the state’s unemployment rate should decrease to 5.8 percent in 2015 from 6.2 percent in 2014 and 7.4 percent in 2013.


 

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