Economic Update May 21, 2008
May 21st, 2008Steve Peterson, Branch Manager
Chase Home Finance
Office: (800) 894-5440 Ext. 214
Cell: (775) 219-7151
Hints of recovery continue to tease those who hold to the idea that the economy and real estate market will get worse and worse, with home prices falling significantly further in their view. We doubt it, though there are two big worries.
First, we need Congress to do its part to minimize the further foreclosures. Just passing legislation will buoy the markets, giving them more confidence that a recovery is on the way.Senators announced yesterday that an agreement has just about been reached on workable legislation.
Second, the economy must somehow finesse the apparent number of foreclosures on the horizon–nearly two million. Amazingly, if we seem to be successfully driving the numbers of potential defaults and foreclosures lower, it will help everyone who is currently facing trouble. As Cyril Moulle-Berteaux wrote in The Wall Street Journal, “Even if write-backs [of existing mortgage values] do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.”
Thumbnail Sketch: Very little movement—especially important: very little negative movement—among economic indicators. Two camps have formed, one of which says the economy and real estate market have already bottomed with nowhere to go but up (very slowly)…and the other argues that there is a great deal more slowing and pain in our economic future.
Based on the flow of economic indicators, either could be right—or, as was suggested in this update recently, perhaps both could be right, with the recovery eventually pushing the remaining dangers aside.
Meantime, a few more salient indicators:
· The Conference Board of Leading Indicators rose in April by 0.1%–obviously nothing to get tremendously excited about, except that it is the first time in a year and a half that it has risen two months in a row. Consider it a mild vote in favor of the economy-already-bottoming idea.
· The Consumer Price Index (CPI) rose 0.2% in April; the core index (with volatile food and energy data removed) rose by 0.1%. Core CPI has increased by 2.3% over the past year, and is apparently slowing.
· Meantime, the Producer Price Index (PPI) which measures the advance of inflation at the wholesale level, rose by 0.2% in April, with a 0.4% increase at the core level, suggesting a lot of inflationary pressures remaining among the materials used in the manufacturing process.
None of this is particularly conclusive. The economy seems to be plodding along reasonably well, despite the drama surrounding a possible recession (are we in one? how deep? how long?).
The far more interesting news is starting to come from real estate sales reports. The Sacramento Bee reported Monday that Sacramento-area homes sales rose to the highest level in almost a year in April—“the April sales tally was 26.3 percent higher than April 2007”—according to DataQuick Information Systems.
Another article in the same newspaper declared, “Home sales surged 22 percent in Southern California as bargain-hunters bought lower-end homes in areas hardest hit by foreclosures,” again according to DataQuick.
And is that the cavalry we hear off in the distance? There were announcements Monday evening that the Senate was on the brink of a housing (read: foreclosure) recovery act. Stay tuned!
KEY INDICATORS
Gold $920.20/ounce [up]Crude Oil (Brent) $127.80/brl [up]U.S. Dollar to… Euro .6383 [down] Japanese Yen 103.73 [down]6-mo Treasury Bill Yield 1.89%10-yr Treasury Note Yield 3.79% [6-mo unchanged, 10-yr down 10 bps]11th Dist Cost of Funds: 3.280%30-yr Fixed-rate Mortgage 6.48%15-yr Fixed-rate Mortgage 6.00%1-yr ARM 6.15% [HSH averages rates: 30-yr down 6 bps, 15-yr up 1 bp; 1-yr ARM down 63 bps]
Mortgage Bankers Association Mortgage Applications Index week ending 5/9 Overall 674.4 (up 2.9%; up 15.6% the week prior) Purchase Money Loans 378.5 (down 0.7%; up 12.1% the week prior) Refinancing Loans 2422.1 (up 6.5%; up 19.3% the week prior)
Weekly Jobless Claims 5/10 371,000 first computation – 365,000 prior week (with no revision)
NAHB Housing Market Index May Down from 20 to 19
Housing Starts April Up 4.9% residential construction up 8.2% - SFRs down 1.7%
