Forecast Update: NAHB/Wells Fargo Housing Market Index, Jobless Claims, Mortgage Purchase Applications, and Mortgage and Treasury Rates

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

• The National Association of Home Builders/Wells Fargo Housing Market Index was released this morning and showed no change in January, the 3rd consecutive month of no change. The indexes for current conditions and 6-month expectations were 16 and 25, respectively. On a positive note, the index for foot traffic rose one point to 12.
• NAHB economists cited constraints on financing and appraisals in their monthly report.
• The NAHB’s index of builder confidence has been lackluster since the end of the home buyer tax credit, but has gained ground since the end of the summer. Today’s measure suggests that housing starts are likely to hold steady in tomorrow’s reading from the Census.

• Mortgage purchase applications were down 1.9 percent for the week ending January 14th. However, applications are up over 15 percent from recent lows in July 2010. Purchase applications do not always translate into loan acceptances and transactions. Also, purchase applications do not take into consideration cash buyers who according to the November REALTORS® Confidence Index make up as much as 31 percent of transactions. . In Las Vegas and Miami, the cash purchases have said to approach 50 percent.
• Mortgage purchase applications were down 15.3 percent from the same week a year ago.
• Refinances, which made up 73.0 percent of mortgage activity, rose 7.7 percent as mortgage rates fell to 4.77 percent on a 30-year fixed mortgage.
• Housing starts fell in December to an annualized rate of 529, 000 down from a revised 553,000 in November.
• The West increased 45.8 percent, while the South fell 2.2 percent. It is believed that weather may have impacted sharp decreases in the Midwest (38.4 percent) and Northeast (24.7).
• Housing permits saw a 16.7 percent increase in December showing signs of optimism among homebuilders.

• Weekly data on initial jobless claims released today for week ending Jan. 15th, continues to suggest that the job market is improving. The initial claims fell by 37,000 to 404,000. Though weekly data is frequently volatile, the four-week moving average has been declining over the past seven months and is at 411,750. Falling below 400,000 would indicate more jobs are being created than being lost.
• The largest increases in initial claims were in New York, California, North Carolina, Texas, and Illinois, while the largest decreases were in Oregon, Iowa, Michigan, Wisconsin, and Kentucky.
• The most recent net job creation figures showed 103,000 net addition in December and 1.1 million net addition in the past 12 months.

• Freddie Mac’s Primary Mortgage Market Survey showed yesterday that mortgage rates were roughly steady, increasing from 4.71 percent to 4.74 percent. This is the third week that mortgage rates have been under 4.8 percent after their sharp rise to 4.86 percent at the end of 2010. The big driver of these rates is the rate on the ten-year Treasury. After rising sharply from 3 percent to 3.5 percent in the month of December, Treasury yields eased a bit and have been fairly steady in the 3.3 to 3.4 percent range.
• Treasury rates can move in response to a change in monetary policy, a change in inflation expectations, or an indication of economic recovery. The Federal Open Market Committee, the group at the Federal Reserve that sets monetary policy, meets next week and is expected to maintain the current policy despite a rotation among seats held by four of the twelve regional bank presidents. While NAR’s Inflation Watch suggests that some inflation measures deserve a watchful eye, but on the whole inflation is not presently driving up rates. Overall economic improvement may be the biggest current driver of rates. This week’s economic data were mostly in line with expectations of modest growth suggesting that rates will continue to hold steady going forward.