Economic Update Week Ending August 15, 2014
30-YEAR MORTGAGE RATES AT 14-MONTH LOW. At 4.12%, today’s 30-year fixed rate mortgage is cheap. It’s less than half of the 30-year loan’s historical average, and the number of discount points required to get a 30-year loan are few fewer than it was even last decade. For the sixth time in 9 weeks, and the twentieth time this year, 30-year mortgage rates are down across all mortgage loan types including Jumbo loans, FHA loans, USDA loans, VA loans, and conventional loans backed by Fannie Mae and Freddie Mac. Mortgage rates have moved to a 14-month low; and 15-year fixed and adjustable-rate mortgage rates are down, too.
The average rate for 15 year fixed mortgage loans slipped to 3.24% from 3.27% from the week earlier. The lending rates recorded this week are below the levels recorded during the same time of the year in 2013.
10 year US Treasury bonds, the benchmark interest rate has declined to 2.34%, a 14 month low! Treasury bonds have outperformed practically all major asset classes in 2014. The Treasury’s auction of $27 billion of three-year notes Tuesday produced the lowest yield since April, as speculation that turmoil in Ukraine and Iraq may worsen fueled investor demand for safety. Economic reports out of Europe, and Asia were disappointing. The United Kingdom reported that although there has been gains in employment wages had fallen. Japan reported negative growth and a shrinking economy. Spain, Portugal, Italy also saw an unexpected stalling in their economies beyond what was expected. Japan saw a larger than expected decline, as did China. Russia showed that they had some slowing, but not as much as expected with the economic sanctions. All in all it was a poor week for the rest of the world as US economic reports were pretty good with the exception of Macy’s reporting that sales had fallen, leaving investors to wonder what retail reports are yet to come. The 10-year Treasury yield, which falls as prices rise, was down 3 basis points at 2.398%, its lowest since June 2013 on a closing basis. The 5-year fell 1 basis points to 1.567%. The 30-year yield dropped 5 basis points to 3.189% after a successful sale of $16 billion in bonds at the lowest yield in a year. It should be noted that Asia and much of Europe announced that they would continue with low interest rates longer than expected as their economies have stalled. Many of these countries have 10 year yields below ours. Much of our low yields are due to a flight to safety as overseas investment has poured in, both for higher yields, and for more stability.
California gains 27,700 jobs in July. California’s unemployment rate was unchanged at 7.4 percent in July, and nonfarm payroll jobs increased by 27,700 during the month for a total gain of 1,371,500 jobs since the recovery began in February 2010, according to data released today by the California Employment Development Department (EDD) from two separate surveys. In July 2013, the unemployment rate was 9.0 percent. The unemployment rate is derived from a federal survey of 5,500 California households
DataQuick reports that home sales increase 0.9% from last month. DataQuick reported that an estimated 39,608 new and resale homes and condos sold statewide in July, up from 39,524 in June, but down 8.7% from the 43,381 last July. July sales have varied from a low of 30,596 in 1995 to a high of 71,186 in 2004, according to the report. The average for July since 1988 is 43,381 putting this July 14% below the average.
DataQuick- The median price for a home in California was down 0.3% to $392,000 from $393,000 in June, yet up 8% from last July’s $363,000. Although it was the 29th consecutive month of year over year gains, it was the first month that the year over year increase was under 10% since June of 2012. A further sign of prices beginning to flatten after a large run up. In June of 2012 the median price was $274,000.
DataQuick also reported that sales of properties that had been foreclosed was down to 5.6% of properties sold in July. Foreclosed home sales were 5.8% of all sales in June and peaked at 58.8% of all resale’s sold in February of 2009.
Q2 Delinquency and Foreclosure Rates Slide. The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.04 percent of all loans outstanding at the end of the second quarter of 2014. The delinquency rate decreased for the fifth consecutive quarter and reached the lowest level since the fourth quarter of 2007. The delinquency rate decreased seven basis points from the previous quarter, and 92 basis points from one year ago, according to the Mortgage Bankers Association’s National Delinquency Survey.
U.S. stocks rose this week, giving major indexes a second week of gains. The Dow closed the week at 16,662, down 50 for the day, but up 108 points from last weeks close of 16553, up 0.6% for the week. The S&P closed at 1955.06 down 0.12 for the day, but up 23.47 from last weeks close of 1931.59, a gain of 1.2% for the week. The Nasdaq is up 2.1% for the week closing at 4464.93, up 11.92 Friday and up 93.94 from last weeks close of 4370.99/. It is the biggest weekly gain for the S&P since April, and the biggest for the Nasdaq since February. The S&P is 1.2 percent off a closing record hit late July. In a sign of the market’s long-term strength, the index has marked more than 1,000 days since its last correction, which Wall Street defines as a drop of 10 percent from the most recent high.
July Retail Sales Reports released this week, numbers disappoint. Retail sales were essentially flat in July, providing evidence that consumers have yet to shed their doubts about the economy despite recent job gains. The Commerce Department said Wednesday that seasonally adjusted retail sales were unchanged in July compared with the prior month. Total sales rose a statistically insignificant $161 million from $439.6 billion in June. Spending dipped at auto dealers and department stores last month. The losses were offset by gains at grocery stores, gasoline stations, restaurants, clothiers and building material stores. The figures suggest that Americans are hesitant to spend, which could limit growth for the economy. Retail sales are closely watched because consumer spending accounts for 70 percent of economic activity.
“The July number came as a disappointment,” said Stuart Hoffman, chief economist at PNC Financial Services Group. But he noted, “Consumer confidence measures are improving, and credit is more easily available. Falling gasoline prices in recent weeks will put more money in consumers’ pockets to spend on other goods and services. Consumer spending growth will be positive after inflation over the next year, although it will lag overall economic growth.”
Retail sales have flat-lined even though employers have added more than 200,000 jobs a month for the past six months. Payrolls increased by 209,000 in July and 298,000 in June. But those gains have yet to meaningfully boost wage growth above inflation, causing spending to be more restrained. Retail sales have increased 3.7 percent over the past 12 months, but economists doubt that spending can grow much faster unless incomes increase. Consumers just don’t have the cash flow to finance sustained gains above 4 percent. The weak sales in July mean that consumer spending is off to a slow start in the third quarter.
U.S. Industrial Production Rises 0.4% Amid Jump In Manufacturing Output. With a jump in manufacturing more than offsetting a sharp drop in utilities output, the Federal Reserve released a report on Friday showing that U.S. industrial production increased by slightly more than expected in the month of July. The Fed said industrial production climbed by 0.4 percent in July, matching the upwardly revised increase reported for June. Economists had expected production to rise by 0.3 percent compared to the 0.2 percent uptick originally reported for the previous month. The bigger than expected increase in production was largely due to the jump in manufacturing output, which surged up by 1.0 percent in July after climbing by an upwardly revised 0.3 percent in June. The Fed said the production of motor vehicles and parts soared by 10.1 percent, while output in the rest of the manufacturing sector rose by 0.4 percent.
Wells Fargo loosens standards for jumbo mortgages. Wells Fargo & Co has relaxed its standards for loans for some high-priced homes as the largest U.S. mortgage lender tries to combat an industry-wide drop in mortgage volumes. The bank has eased its lending standards on mortgages it acquires from other banks, said spokesman Tom Goyda, for “jumbo” loans that are too large to receive a guarantee from government-backed mortgage companies. In late July, the San Francisco-based bank lowered the minimum credit score on these fixed-rate jumbo mortgages to 700 from 720. Credit scores range from 300 to 850, and levels below 640 are often considered subprime.
The Mortgage Bankers Association said its seasonally adjusted composite index of mortgage applications for the week ending August 1 rose 1.6% from the previous week. Purchase volume fell 1%. Refinancing applications increased 4%.The trade deficit decreased from $44.7 billion in May to $41.5 billion in June. Exports rose $0.3 billion to $195.9 billion. Imports decreased $2.9 billion to $237.4 billion.
This was the first month that we have seen the month over month median price drop since the recovery started. Although slightly lower from June, prices are far above the prices last year, after a big run up early in the year. We have seen our closings increase from last month. It’s hard to say if that is because the number of sales are up, or if it’s just because we have more agents. One thing for sure. It is easier to buy a home than it has been in the past couple of years. There are fewer multiple offers. There are fewer cash offers and financing is becoming easier to get. I think this plays to our strengths and is a big factor of our sales being up! We really specialize in being The Family Realtor, working with a high percentage of traditional buyers, rather than having a very high percentage of investor buyers that have pulled back significantly. At the same time our sellers have also always been more traditional sellers, not a high percentage of banks, who no longer have a large inventory of homes to sell. And most importantly, now that sellers perceive that it may be more difficult to sell their home they are looking for more services from their Realtor. That is probably why our inventories have swelled, as our agents are now taking more listings, because we can offer more and better advertising, marketing and support than our competitors!
Have a great weekend!