Weekly analysis of the economic data released during the past week, and how current economic conditions are affecting the real estate market.
National Association of Homebuilders (NAHB) /Wells Fargo Housing Market IndexAn indicator of sales and expectations for future home building, the National Association of Homebuilders (NAHB)/Wells Fargo Housing Market Index moved up three points for the month of October, to a value of 16—first uptick in five months. An index value of 50 represents markets in balance; values higher than 50, point to more optimism about the market, whereas values below 50 represent more pessimistic opinions about market conditions. All individual components of the index posted advances. “Single-family sales: Present” moved up three points; “Single-family sales: Next 6 Months” rose five points; and “Traffic of Prospective Buyers” component increased two points. Builders’ confidence level reflects continued weakness in the housing market, where new construction is competing with distressed sales.Federal Reserve: Industrial Production Data, Treasury and Bond RatesToday, the Federal Reserve released the figures for Industrial Production. Production decreased 0.2 percent in September, following a 0.2 percent increase in August. The only industry group not declining was mining. Within market groups, the largest declines were recorded by nonindustrial supplies (-0.9%) and construction (-0.8%). On a yearly basis, production increased by 5.4 percent, with Business Equipment posting a noticeable 10.1 percent advance. Industrial Production for Consumer Goods decreased 0.4 percent from August to September. The 10-year Treasury rate has been flat at 2.625 percent for the past three months, a noticeable drop from the 3.375 percent in January of this year. The long-term bond rate does not seem to follow the Federal Reserve’s intentions. However, it bodes well for the cost of borrowing in other financial markets.
Housing StartsHousing Starts increased in September by 2,000 units on a seasonally adjusted annualized basis to 610,000 units. The increase included a 19,000 unit increase in single family home starts which was offset by a 17,000 decrease in multi-family starts. In particular, single family starts increased by 24,000 units in the northeast in September. Despite a strong September for single family home starts, the overall trend suggests increasing multi-family starts and declining single family starts. On the whole, September housing starts of 610,000 in September remain well below the natural replacement rate of 1.5 million units per year. This has the effect of detracting from economic output and depressing unemployment, but keeps additional inventory from competing with existing homes for sale.
Mortgage Purchase ApplicationsMortgage purchase applications fell 6.7 percent for the week ending October 15th. Purchase applications do not take into consideration cash buyers who according to the August REALTORS® Confidence Index make up as much as 28 percent of transactions. The data was not adjusted for Columbus Day. Mortgage purchase applications were down 36.9 percent from the same week a year ago. The government portion of the index (FHA loans) was down 5.9 percent. New FHA regulations went into place at the beginning of the month. Refinances, which made up 82.4 percent of mortgage activity, were down 11.2 percent as mortgage rates rose to 4.34 percent on a 30-year fixed mortgage.
Jobless ClaimsJobless claims for the week of October 16 show some improvement in the job market, still more improvement is needed. Given the short last week due to Labor Day, data for some states needed to be revised and showed 13,000 more initial claims. This week, claims fell by 23,000 to end at 452,000. The four-week average is also down 4,250 to 458,000. Continuing claims remain trending down as well with 9,000 fewer claims for the four-week average ending October 9. This is a combination of new hiring but also expiration of benefits. The unemployment rate for insured workers remains at 3.5 percent.Leading Economic Indicators (LEI)A separate report on the leading economic index (LEI) shows a modest rise of 0.3 percent. The LEI is a weighted measure of ten separate indicators. Five of the ten indicators showed growth: interest rate spread, average initial jobless claims, real money supply, stock prices and manufacturers’ new orders for consumer goods and materials. Negative pull came from the index of supplier deliveries, building permits and the index of consumer expectations.Beige BookThe Beige Book released Wednesday by the Federal Reserve indicates that the economy is growing, albeit very timidly and unevenly across the county. Seven of the Fed’s 12 regions reported moderate improvements in business activity. Philadelphia, Richmond and Cleveland described their economic activity as mixed or steady. Only Atlanta and Dallas suggested their economic growth was slow.
Mortgage Bankers Association: Mortgage Rates DataOn Wednesday, we reported that the MBA data showed a slight increase in mortgage rates. Data collected and released by Freddie Mac also showed a slight uptick in fixed rate mortgage rates, from 4.19 to 4.21 for the 30-year FRM. There are several factors that affect interest rates including mortgage rates, and you can find a full discussion in Lawrence Yun’s Real Estate Insights article this month. In this update, we call your attention to the difference in the monthly payment for an owner with a mortgage at this week’s 4.21 percent versus 5.06 percent, the mortgage rate Freddie Mac reported for the week ending April 29, when contracts had to be in place for tax-credit buyers.Buyers who borrow $100,000 to purchase a home save more than $50 a month and $600 a year at the current rate compared to the April rate. This savings translates into $8,000 in 13 years. Buyers borrowing $200,000 for their home purchase save more than $100 a month, $1,200 a year, and save $8,000 in six years.