Forecast Update: Consumer Confidence, the Case-Shiller Index, Mortgage Purchase Applications

Weekly analysis of the economic data released during the past week, and how current economic conditions are affecting the real estate market.

• The Chicago Fed’s index shows the three-month moving average growth below its historical trend at -0.53 and suggests subdued economic growth and low inflationary pressure for the coming months.
• Job creation will thus be slow. However, low inflation will mean continuing low mortgage rates.
• The index is a composite index of 85 economic indicators that comprise the four categories: production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories.

• The Case-Shiller 20-city price index increased 3.1 percent from July 2009 to 147.6, but was down 0.1 percent from June.
• San Francisco, San Diego, and Los Angeles exhibited the largest gains from July 2009, all of which increased by over 7 percent. Tampa, Charlotte, and Las Vegas showed the largest declines from July 2009, all of which decreased by at least 3 percent.
• The Conference Board’s Consumer Confidence Index decreased by 8.8 percent in September to 48.5.
• The decrease in September was primarily driven by a decline in consumer expectations over the next six months, which decreased by 9.2 percent in September.
• Home values are holding on, but without a recovery in confidence, buyers will continue to hesitate.

• Mortgage purchase applications increased 2.4 percent for the week ended September 24. Applications are slightly up from July and August but remain near 13-year lows. Purchase applications do not take into consideration all-cash purchases which according to the July REALTORS® Confidence Index made up 30 percent of transactions.
• Mortgage purchase applications were down 32.4 percent from the same week a year ago.
• Most of the gains in purchase applications came from the government (FHA) portion of the index which rose 4.5 percent, conventional purchase applications were up slightly at 0.8 percent.
• Refinances fell 1.6 percent yet still made up 81 percent of mortgage activity as mortgage rates fell to a new survey low of 4.38 percent for a 30-year fixed mortgage.

• The labor market continues to show signs of improvement, with new claims for jobless benefits falling more than expected. Initial unemployment claims dropped by 16,000 to 453,000 last week. The four-week average fell by 6,250 for the fifth straight week and is also at its lowest level since the end of July. It is lower a significant 30,000 from a month ago. Initial claims need to fall below 400,000 for job creation to outpace job losses. Continuing claims are also trending down with drop of 83,000 in the week ended 9/18, to 4,457,000.
• The largest decrease in new claims was in Florida, due to fewer layoffs in the construction, trade, service, manufacturing, and agriculture industries. California saw the largest increase in claims due to the return to a five-day work week after the Labor Day holiday and more layoffs in the service industry.
• The third revision of the second quarter GDP edged up slightly due to higher consumer spending and a higher estimate for inventories. It is at 1.7 percent annualized from 1.6 percent in the second revision. Real GDP in the second quarter is up 3.0 percent year-over-year, compared to 2.4 percent in the first quarter. The inflation measure remained unchanged.

• Personal Income and Outlays were released this morning and the headline figure rose 0.5 percent. The wage component was 0.3 percent, down slightly from July’s increase of 0.4 percent but still strong.
• Also in this release was the report on Personal Consumption Expenditures (PCE), the growth of which is used as a measure of inflation like the Consumer Price Index. PCE rose 0.2 percent from July to August and was up 1.7 percent compared to August of 2009. The PCE index excluding food and energy prices rose just 0.1 percent from July, while the energy goods and services component jumped 2.3 percent over this same period.
• Construction spending rose 0.4 percent in August after falling 1.4 percent in July. The private sector contribution was weak as the increase resulted from a 2.5 percent increase in public spending, which more than offset the 0.9 percent decline in private spending. Spending on public highways rose 5.1 percent.
• The ISM manufacturing index was released this morning as well. A score above 50 points to an expansion in manufacturing. The index measured 54.4, down slightly from August and has been trending lower since March. Of more concern are the rise in inventories, up 4.2 points to 55.6, and the decline in new orders, down 2 points to 51.1, a pattern that points to further deceleration in this sector. This weakness was reflected in manufacturing employment which eased from 60.4 to 56.5.
• William Dudley, President of the New York Federal Reserve Bank, commented earlier this morning that the Fed would resume purchases of Treasuries and mortgage-backed securities if signs of economic weakness continued. In this remarks, Mr. Dudley suggested that lower rates would help to support home prices, make home purchases more affordable, and enable many households to refinance their mortgages at lower rates. All of these results, he suggested, would help to stimulate the economy.
• Price growth is being driven by fluctuations in energy prices, while core prices and wages remain relatively flat. This trend gives the Fed room to use quantitative easing to stimulate demand, while the private sector weakness pointed out in today’s construction report and ISM index results suggests that the Fed will be more likely to use it.