A weekly analysis of the economic data released during the past week, and how current economic conditions are affecting the real estate market.
Palm Coast, FL – August 12, 2011 – Every week the National Association of Realtors® Research staff analyzes key data releases and explains what they mean for you and your business. In this update, we give the highlights of the most important data releases for the week of August 8-August 12, 2011, along with graphs that show the latest movement and overall trends.
At a glance, this table shows the forecast for some of the most pertinent weekly data for REALTORS® to keep in mind. This changes from week to week as new data becomes available. For the full forecast from the latest Pending Home Sales release, click here (PDF).
Highlights for Monday, August 8, 2011:
- Fannie and Freddie have been downgraded after the U.S. government was tarnished over the weekend with a less than stellar credit rating.
- Given that Fannie and Freddie are effectively nationalized with implicit government backing, it is common sense that the ‘offspring’ would also get the same mark down as the ‘parent’ (the government in this case). FHA loans have explicit (not implicit) government backing so FHA mortgage rates will move directly in proportion to the U.S. government borrowing rate.
- The spread between Fannie and Freddie bonds with the U.S. Treasury has opened up because of implicit and not explicit backing. Still, the fall in the Treasury interest rates is large enough that even Fannie and Freddie backed loans will get lower rates despite the widening spread.
Highlights for Tuesday, August 9, 2011:
- Not surprisingly, productivity fell in the 2nd quarter and the 1st quarter’s figures were revised downward. This downward trend reflects the sharp downward revision in GDP (total production) in recent months.
- Real output fell, which given relatively fixed labor costs, drove up the unit costs of labor. As a result, real compensation was driven downward.
- The Federal Open Market Committee (FOMC), the group that decides whether the Fed should intervene in the economy, discussed its current stance on the economy. It decided to maintain the Federal funds rate, the rate at which banks can borrow from the Fed, at 0% to 0.25%. Furthermore, the FOMC recognized the deterioration in the economy and stated that it would monitor the economy and “employ…tools as appropriate” to promote a stronger economic recovery and stable prices. In a move important for housing, the FOMC made it clear that it would continue to reinvest the principle payments from its holding of asset purchased (mortgage backed securities and longer-term Treasury bonds) under QE2.
Highlights for Wednesday, August 10, 2011:
- Interest rates on 30-year fixed mortgages declined from 4.45 percent to 4.37 percent.
- Buoyed by dropping interest rates, refinancing activity provided the main thrust for the week’s activity, rising 30.4 percent.
- The index does not account for cash purchases—in June, they made up 30.0 percent of transactions.
Highlights for Thursday, August 11, 2011:
- New jobless claims continue to fall and are down to 395,000. The four-week average of 405,000, down 3,250 in the week, is at the lowest level since middle of April. This is a 13,000 decrease from the same time in July.
- The 400,000 level is generally considered by economists as a point at which the economy is creating more jobs than losing, however it appears that recent slowdown in employment gains is due to a lack of hiring rather than more firings.
- Continuing claims also indicate improvement and fell 60,000 to 3.688 million. Decrease in claims was reported by 44 states, while 9 reported an increase. Assuming that new jobless claims continue to trend down, NAR expects about 1.5 to 2 million net new jobs in the next 12 months.
Friday, August 12, 2011:
- Retail and food services sales were up 0.5 percent in July and 8.5 percent from July one year ago. On a year over year basis, this is the second greatest gain since the end of the recession, and the monthly figure is a big improvement over the past 3 disappointing figures.
- These sales figures are measured without adjusting for price change, so they could be inflated by large price increases. However, consumer prices actually declined in June, though higher by 3.6% compared to one year ago.
- Sales gains were broadly spread by industry, but on a year over year basis, the biggest gains were seen for gasoline stations whose sales were up 23.6 percent. As a reference, prices were up 35.6 percent for gasoline in the year ending in June, so higher prices were a big driver here.
- Gasoline sales tend to make up 8 to 12 percent of retail sales and food services. While gasoline sales certainly boosted overall sales, retail and food services sales are up 6.8 percent even when sales at gasoline stations are excluded.
- Preliminary data on consumer sentiment by the University of Michigan and Reuters was also released today. This data shows that consumers are much more anxious about the current situation and the economic outlook. It’s worth noting that this survey was conducted earlier in the month, a time when there was an incredible amount of uncertainty in the markets. Revised data that more broadly covers the month will be released at the end of the month and will likely show improvement.
Source: National Association of Realtors®