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 – June 10, 2011 – Every week the National Association of Realtors® Research staff analyzes key data releases and explain 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 May 16-May 20, 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. The directional shift notes the trend from last week’s numbers. For the full forecast from the latest Pending Home Sales release, click here (PDF).
Highlights for Monday, June 6, 2011:
Despite the very high federal budget deficit and accumulating debt, the U.S. government’s borrowing rate still remains at rock bottom levels. The 10-year government bond yield was 2.99%. Anything under 4 percent would be considered as being exceptionally low from an historical perspective, so the U.S. government is very fortunate that the cost of financing this huge debt continues to be this low.
If the interest rates were to rise by few percentage points, then the deficit problem could quickly spiral out of control. Mortgage rates would also rise, as the 30-year fixed mortgage rates are priced on average at about 2 percentage points above the 10-year Treasury rates. NAR expects the 10-year borrowing rate to reach 3.7 percent by the end of the year.
Highlights for Tuesday, June 7, 2011:
A new regulation, part of last year’s Dodd-Frank bill, to possibly mandate a minimum 20 percent down payment to obtain a mortgage is getting postponed a bit.
Before any new rules are imposed, there is a comment period which permits people to submit how and why the rules will harm or help the country. NAR has provided comments of a significant negative impact to the housing market and homeowners. See the video here.
Because of strong communication efforts related to this matter by many groups, the comment period was extended yesterday. This extension is now until August 1, and nonetheless is quite a rare happenstance in Washington policymaking. It could also be an admission by regulators that the original rule of requiring a 20 percent down payment may have serious unintended consequences. However, after the August comment period, the regulators will come up with precise rules on down payment requirements that will go into effect in one year.
Highlights for Wednesday, June 8, 2011:
People are not taking out mortgages. The number of applications for home purchase decreased 15.2 percent from the previous week. Refinancing activity also declined 8.8 percent from the prior week. These are strange goings-on, since mortgage rates on a 30-year fixed mortgage decreased from 4.58 percent to 4.54 percent during the week.
There has been general economic and housing market sluggishness in the second quarter of this year. The likely trigger was gas prices peaking in April, which then led to a fall in the consumer confidence index.
Note that the mortgage applications do not include all-cash transactions. All-cash buys have been about one-third of all sales in recent months, an unprecedented high figure.
Highlights for Thursday, June 9, 2011:
The economy continued to grow in April and May according to the Fed’s Beige Book, a collection of observations by those in business in the 12 Fed districts. New York, Philadelphia, Atlanta, and Chicago reported that the pace of growth slowed, Dallas indicated that growth was accelerating, and all other districts indicated steady growth. Real estate performance was mixed across the country but the rental market reportedly strengthened broadly.
NAR Research produces similar reports called the Surveys of REALTOR® Sentiment/Regional Vice-Presidential Reports. These reports focus on performance in the real estate market as reported by NAR Regional Vice Presidents.
The trade deficit shrank by $3 billion in April to $43.7 billion driven by increasing exports and a slight reduction in imports. By definition, an improved trade balance contributes to economic growth, but many factors contribute to a country’s trade balance.
Friday, June 10, 2011:
- Though import prices have been escalating over the past year, leading to a 12.5 percent jump from a year ago’s levels, the change in prices from April to May show some inflationary easing. The month to month increase was 0.2 percent, down from 2.2 increase from March to April.
- Some good news: prices for petroleum imports declined 0.4 percent, the first decrease in 9 months. Still, fuel prices are 42.3 percent higher than the same time last year.
- Excluding fuel, consumer goods inched up 0.3 percent, and a much smaller 4.4 percent over the year. Prices of exports also showed some easing, with a 0.2 percent increase, also the lowest in 10 months. Since May 2010, all export prices are 9 percent higher.
- The largest drive came from agricultural exports, which jumped 30.1 percent, though showing some easing since April with a 0.2 percent decline. This is the first decline in 10 months.
- Generally, high inflation has translated into higher long-term borrowing rate like on the 30-year fixed mortgage. However, this has not been the case – yet.
- Separately, the Fed yesterday released their quarterly Flow of Funds report which showed a decline in household debt at annual rate of 2 percent in the first quarter. Household debt has been contracting continually since the beginning of 2008 mostly driven by falls in home mortgage debt. Home mortgage debt again fell at an annual rate of 3.5 percent in the first quarter, 75 basis points decline from the same time last year. Unfortunately, this is mostly due to foreclosure sales. Household net worth which accounts for the difference between the value of assets and liabilities for households was up $943 billion from the quarter before, to end at $58.1 trillion in the first quarter.