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 19, 2010 – 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 June 13-June 17, 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 13, 2011
The stock market has fallen by about 7 percent in the past month in conjunction with a series of economic data pointing to very sluggish economic expansion. That drop translates into about $1.3 trillion in lost wealth in stock market equity. Less wealth will mean very cautious consumer spending going forward.
Oil prices after peaking in April have fallen by $10. Today’s reading on West Texas Oil is at about $98 per barrel. This reduction in oil prices, if it lasts for one month, translates into approximately $600 million in savings for U.S. consumers for the month and into $300 million staying in the country. For one year, it translates into $7.2 billion for consumers. The consumer spending response to oil prices is quite direct. That is, all of the $7.2 billion in savings will get spent on something other than oil.
Bottom line: The economic impact of the fall in the stock market can be neutralized by a fall in oil prices.
Highlights for Tuesday, June 14, 2011:
Retail sales slipped 0.2% in May after a solid gain in April. The decline was no surprise as it followed a sustained period of high fuel costs and weak economic news, which have weighed on consumer demand since March, especially for large goods like automobiles.
The producer price index (PPI) rose 0.2% in May, which was lower than the 0.8% rate reported a month earlier. But prices are rising fast for producers when compared to one year ago; they have jumped 7% in 12 months on finished products and 10% on intermediate products. Fuel prices peaked recently and while they remain strong, crude fuel prices have begun to moderate which could bring down the PPI.
High gas prices and weak economic news have taken a toll on consumer spending this spring. However, gas prices have begun to ebb. Falling prices will help real estate agents whose gas costs will decline and moderate core prices will help to keep long-term mortgage rates stable and affordable, while the economy retrenches for a continued expansion later this year.
Highlights for Wednesday, June 15, 2011:
The Consumer Price Index (CPI) is picking up, now 3.6 % higher compared to a year ago. On a month to month basis, price pressure mildly eased to a 0.2% monthly increase in May, down from 0.4% a month earlier. The decline was led by a 1.0% decrease in fuel prices of which the gasoline component declined 2.0%.
Core CPI, which drives long-term borrowing costs, edged up slightly from 0.2% in April to 0.3% in May. The owner’s-equivalent rent component of the CPI, which estimates the rent an owner would have to pay if they were to rent their home, rose just 0.1%.
There were also some positive numbers from the Mortgage Bankers Association, which announced a 24.5% increase in mortgage applications for the week ending June 10th, following a sharp drop in the previous two weeks. The bulk of the gain came from refinancing as the average 30-year fixed rate mortgage slipped from 4.61% to 4.49% over the last three weeks according to Freddie Mac’s weekly mortgage rate survey. However, purchase applications grew 14.3%, nearly erasing the decline over the previous two weeks. MBA’s figures do not include all-cash buyers, who have accounted for an unusually high share of purchases in recent months.
Highlights for Thursday, June 16, 2011:
Today continues this week’s good news for the economy. The number of new jobless claims is down by a noteworthy 16,000 to end at 414,000. This decline brings the 4-week average to 424,750, which is 15,000 claims below the same time last month. Still, falling below 400,000 is critical for major improvement in the employment.
Continuing claims also fell by 21,000 to 3.709 million. If jobless claims stay at their current pace, NAR expects less than 1.5 million net new jobs in the next 12 months, which would barely lower the unemployment rate.
Housing starts showed some slight improvement in May, increasing 3.5 percent, after a 8.8 percent tumble in April.
Highlights for Friday, June 17, 2011:
- 10-year treasury rates have averaged about 3 percent in the last year while 30-year fixed rate mortgage rates have averaged about 4.6 percent—lower than any other time in the last 50 years. What is the likely path going forward?
- Many economic variables factor into low interest rates: a reduced appetite for risk causes people to put money into safe US Treasuries, a low inflationary environment reduces the inflation premium savers demand, the Federal Reserve’s purchase of Treasuries and other securities known as quantitative easing.
- The Fed’s program, sometimes called QE2 because it is the second round of quantitative easing, is scheduled to end at the end of the month, and statements by FOMC members suggest that they will not extend the program. In the last round of easing, the effects lasted some time beyond the end of the program, so the end of QE2 does not herald an immediate increase in rates, but rather some upward pressure.
- While deflation fears were common a year ago, inflation is now a bigger concern. The most rapid price increases were concentrated in energy and food products and believed to be transitory. If that is the case, temporarily higher prices may not translate into higher interest rates, but if the inflation persists, this is an additional upward pressure on interest rates.
- Finally, as the economy returns to health, investors will regain their appetite for riskier investments and turn from US Treasuries into other investments. This behavior will push treasury rates up, leading to additional upward pressure on other rates, but to the extent that investors choose to invest in mortgages instead of treasuries, this activity may narrow the spread between the two rates as well.
- A preliminary reading of consumer sentiment, an indicator of consumer attitudes from the University of Michigan survey, slipped slightly in June to 71.8 from 74.3 in May. In June 2010 the reading was 76.0. Consumers were less satisfied with current conditions and had slightly diminished expectations suggesting continued sluggishness in spending. Final data for June will be available at the end of the month.
Source: National Association of Realtors