Economic Indicators: Weekly Update for May 20, 2011

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 – May 13, 2011 – Every week the 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, May 16, 2011:

• The rate on a thirty year fixed rate mortgage remained relatively unchanged last week at 4.69%, but is down 26 bps from mid-April.
• The average annual inflation expectation in the U.S. over the next ten years declined by 9 bps to 2.39%.
• The decline in long term interest rates reflects conflicting signals from the latest employment report – more people employed, but a higher unemployment rate due to a bigger labor force.

Highlights for Tuesday, May 17, 2011:

• The Census Bureau released monthly figures for housing starts this morning.  The seasonally adjusted figure for April fell 10.6% to 523,000 units.
• Both the single-family and multi-family sectors tumbled in April falling 5.1% and 24.1%, respectively.  Total permits eased 4.0%.
• The decline in construction has a mixed impact.  Construction was an important source of both income and job growth during most of the recent economic expansions and job creation will remain muted until the construction sector reemerges.  However, there is a large reserve of distressed properties on the market.  Limited construction caps the new supply, better enabling the market to handle the excess supply until market conditions improve.  In the meantime, the decline in new construction will retard new home sales in the near term as there are fewer new homes to be sold.

Highlights for Wednesday, May 18, 2011:

• Mortgage applications rose 7.8 percent for the week ending May 13.
• The Purchase index declined 3.2 from the previous week, and was 1.7 percent lower compared with a year ago. Refinancing activity advanced 13.2 percent from the prior week.  Mortgage rates on a 30-year fixed mortgage declined from 4.67 percent to 4.60 percent during the week.

Highlights for Thursday, May 19, 2011:

• Last week’s significant decline in new jobless claims suggests that the surge in April was more likely caused by temporary events than by slowing of the employment expansion. New claims dropped by 29,000 to 409,000 following the 40,000-decline in the previous week.
• There had been 1.31 million net new job additions in the past 12 months to April.  Assuming that jobless claims continue to trend down, NAR expects about 1.5 to 2 million net new jobs in the next 12 months.

Friday, May 20, 2011:

• One highlight is the Minutes of the Federal Open Market Committee (FOMC) meeting which were released this week.
• The FOMC sets a short-term interest rate and uses other tools to conduct monetary policy.  Their goal is to keep the economy at full employment while also maintaining price stability.  This “dual mandate” governs their decision making.
• To confront the economic crisis, the FOMC has set the Fed Funds rate near zero and has purchased Treasuries and other securities in a program called quantitative easing.  Now that the economy is recovering, the FOMC must grapple with its dual mandate and figure out how to remove some of the monetary stimulus before inflation gets out of hand.  While the decision from the meeting was announced nearly a month ago, the recently released minutes shed some more light on the thought process behind the decision.  Below are some excerpts:
• On the Job Market: “Some participants reported that more of their business contacts have plans to increase their payrolls later this year… others indicated that some firms may be putting hiring plans on hold until they are more certain of the future trend in materials and other input costs.”
• On Inflation: “Participants generally anticipated that the higher level of overall inflation would be transitory.”  “A few participants suggested that clearer communication about the Committee’s inflation outlook, such as explaining the measures it uses to gauge medium-term trends in general price inflation and announcing an explicit numerical inflation objective, would be helpful in this regard.”
• For more information on inflation, see NAR’s most recent Inflation Watch.