Economic Update for 10/18/14
DataQuick reported that the number of home sales in California rose for the first time in a year in September, as cooling prices and a strong economy encouraged buyers. The median sales price for new and existing houses and condominiums was $389,000 last month, down 1% from $393,000 in August but up 9.6% from $355,000 last September. It was the 31st straight month of annual increases but only the third straight month that percentage gains were not double-digit. There were 36,316 homes sold in the state, up 0.8 percent from 36,027 sales a year earlier. It was the first annual number of sales increase since September 2013 and the strongest September in five years.
U.S. Producer Prices unexpectedly Edge Down 0.1% in September. Reflecting lower prices for food and energy, the Labor Department released a report on Wednesday showing an unexpected drop in U.S. producer prices in the month of September. The Labor Department said its producer price index for final demand edged down by 0.1% in September after coming in unchanged in August. The modest drop by the index came as a surprise to economists, who had expected prices to inch up by 0.1%. The unexpected drop in producer prices was partly due to a continued decline in energy prices, which fell by 0.7% in September after tumbling by 1.5 percent in August. Food prices also showed another notable decrease, sliding by 0.7% after falling by 0.5% in the previous month. Excluding the drops in food and energy prices, core producer prices came in unchanged in September after inching up by 0.1 percent in August. Core prices had been expected to tick up by another 0.1 percent. Retail sales down for first time this year. Sales at clothing retailers decreased 1.2%. Producer prices rose 1.6% in September from a year earlier. Prices rose 1.8% for the 12-month period through August and 1.7% in July. Energy prices at the producer level fell a seasonally adjusted 0.7% in September. Gasoline prices dropped 2.6%, the largest decline in 18 months. Food prices at the producer level decreased 0.7%, matching the largest decline in a year. Prices of meat fell 4.5%, the largest monthly drop in more than four years. The producer-price index for personal consumption, which most closely matches the consumer-price index, edged down 0.2% in September and was up 1.9% from one year earlier. The Labor Department is set to report on the consumer-price index for September next Wednesday. This created fears of deflation, which is very dangerous to the economy. We saw what dropping home prices did. Just imagine prices dropping on everything. It was thought that years of Fed stimulus would cause inflation, this has not materialized.
Bonds yields continued to drop this week with the 10 year treasury bond yield closed Friday at 2.22% it was 2.31% last Friday. It was a wild week in the bond market as the rate on a 10 Year Treasury plunged Wednesday morning to 1.86% — its lowest level since May 2013. This was after the Producer Price Report was released, and fears of deflation caused a wide stock sell off and a flight to bonds.. The yield moved back above 2% later on during the day and rose sharply Friday when 3rd quarter corporate profits began to come in better than expected which caused a rally in stocks, and pulled money from the bonds. The 10 year Treasury Bond was at an all-time low of 1.39% from July 2012
Freddie Mac reported that rates dropped this week in its survey released on Thursday October 16. At that time the average rate for a 30 year fixed was 3.97%, down from 4.12% a week earlier. The 15 year was 3.15% down from 3.30% last week. The 5 year ARM was 2.92% down from 3.05% last week, and the 1 year ARM was 2.42%, down from 2.63% last week. We got many loans locked in on Thursday at 3.75% before the stock market rallied on Friday and rates climbed to end the week just over 4%. Unfortunately rates across the board rose on Friday, yet are still slightly lower than last Friday after being dramatically lower Wednesday and Thursday. Rarely do you see a ¼% fluctuation in rates in a day! FNMA and Freddie Mac also announced that they will lower down payment minimums to 3%, offering 97% loan to value loans beginning next week to enable more buyers to buy. These will be on loans up to 625,500.
Meanwhile, mortgage applications soared last week, according to the latest data from the Mortgage Bankers Association. The drop in interest rates has corresponded with an increase in mortgage loan application volume. MBA’s Refinance Index rose 5% from the previous week. It was the first increase in three weeks, MBA said. It might be time to look at refinancing. Many who could not refinance before because they did not have enough equity can refinance now that prices have increased. Look into this, it may save you money for as long as you own your home!
The stock market capped a turbulent week with a big gain Friday, after 6 straight days of loses. Friday higher than expected third quarter corporate profits began to be released. The Dow closed up 263.17, or 1.6% for the day to close the week at 16,380.41. It was 16,544 last Friday. The Nasdaq closed up 41.05, up 1% to 4558.14. it was 4267.24 last Friday. The S&P 500 closed up 24, up 1.3% to 1886.76. It was 1906.13 last Friday. Corporate profits across the board were higher than expected. This renewed investor confidence after days of gloomy economic news, which included: Ebola – Health care workers in Texas had been the first 2 to ever contact Ebola in the United States. One traveled by plane with a fever after she called the CDC who told her it would be all right. The same hospital that sent the first Ebola victim to die in the US home and later admitted and attempted treating him is where these health care workers worked. It was learned that they did not have adequate protection. Sadly, rain gear from Big 5 would have provided more protection. This sparked off a widespread fear, as this worker came into contact with many people in many states. Federal Reserve Chairwoman Janet Yellen gave a speech in Boston in which she stated that she was concerned about income inequality in America. One quote she made was, “The past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” She did not say what if anything should be done about it, but investors found it a strange topic for the Fed. It should be noted that investors are among those with the significant income and wealth gains. Deep loses in markets in Europe and Asia on poor economic news, despite their central banks efforts to stimulate their economies. Producer Price Index drop which sparked fears of deflation, after poor retail sales were reported last week. The question was what more can the Fed do? One example of the last few weeks is the S&P 500 which is now 6% below its high on September 18, and it was down over 7% on Thursday.
United States unemployment claims declined to its lowest level since Apr 2000. The U.S. Department of Labor reported on Thursday that jobless claims dropped 23,00 to a seasonally adjusted 264,000. The drop was in contrary to the consensus estimate of a rise to 293,000.
California unemployment dipped to 7.3% in September. This was unusual because the state actually lost 9,800 jobs from the previous month. It is thought that it cannot be all baby boomers retiring and leaving the work force. Let’s see what the unemployment figure comes in at for October.
Industrial production rose 1% in September from August levels and is now up 4.3% year-over-year. The jump was the biggest increase in three years. Capacity utilization rose to 79.3% in the month. Economists had expected a production to rise 0.4%.
We are seeing the real estate market heat up again after stalling a little in August. Our closings have been down the last few weeks, yet our openings have really picked up. I expect closings which run about a month or two behind to pick up in the coming weeks. I would not be surprised to see a month over month price increase and a year over year price increase back up to the 10% level in November when these homes begin to close! I’d also expect to see the number of sales to continue to climb!
Have a great weekend.