Home Finance Update July 2, 2008
July 2nd, 2008Steve Peterson, Branch Manager
Chase Home Finance
Office: (800) 894-5440 Ext. 214
Cell: (775) 219-7151
As is to be expected, this is a rather ragged time economically, with very little news that can be called “good”–but no news that is negative enough to knock the markets for a loop.
Also to be expected–we have entered the heavy blood-letting phase that precedes recovery. (The obvious problem is that we don’t know how long this will last or how far it will go.) Prices are declining as bargain-hunters become more active in the markets and sellers finally acknowledge that they must bring prices down if they expect a sale. This is what happens when the market begins to form its bottom and foreclosures and emergency sales dominate the sales activity.
We will struggle out of this dark forest, indeed, but as I said, it is impossible to know just when and how much damage will be done. The only silver lining to this cloud is that, as I also said, current market activity makes sense in the context of a market seeking its bottom and a turnaround waiting to happen.
Weekly Commentary
Thumbnail Sketch: Commodity prices are climbing again, with gold near the $1,000-an-ounce threshold and crude oil oozing north to nearly $150. Mortgage applications, meanwhile, are still slipping, with purchase money loan applications 22.2% lower recently than they were a year ago and refis down significantly.
It is difficult to be a happy camper in the face of these numbers. We are inclined to grasp at straws—like the slight upward revision to first quarter Gross Domestic Product growth (from 0.9% to 1%). More important, perhaps, is the rise in personal income, which climbed 1.9% in May—primarily due to the distribution of tax rebate checks (without which personal income rose 0.4%).
Intriguingly, personal spending rose at about a 0.8% rate (for the same reason) but the big winner was the savings rate, which made a breathtaking leap to 5%, a feat it has not accomplished since 1995. (By way of contrast, the savings rate has been confined to the 0.2% to 0.6% range over the past several months and before that was flirting with the negative range in which spending wipes out any savings.)
This is potentially good news, though we will wait to see the outcome. What seems significant is that taxpayers aren’t necessarily rushing off to Wal-Mart with their checks (though sales are up at that mega-chain), but are tucking their rebates away, it seems, in savings accounts of one sort or another.
In any case, the rebate checks aren’t having a particularly salient effect on consumer confidence which, as we saw last week, slipped from 58.1 in May to 50.4 in the June survey. That was a 16-year low, the fourth lowest reading in the history of the index (which was first compiled in 1969).
The worst news in the consumer confidence index was the low reached by the “current conditions” category. The nation is neither confident nor happy about today’s economy. Nor are the figures for future expectations at all positive. Beneath all of these figures, of course, is the question of how the labor market will perform—the central issue for consumer confidence, and a powerful influence on whether people buy homes. Watch employment data with care in the coming weeks for a preview of near-term economic conditions.
KEY INDICATORS
Gold $945.80/ounce [up]Crude Oil (Brent) $142.16/brl [up]U.S. Dollar to… Euro .6342 [slightly down] Japanese Yen 105.98 [down]6-mo Treasury Bill Yield 2.12%10-yr Treasury Note Yield 3.96%[6-mo down 13 bps, 10-yr down 12 bps]11th Dist Cost of Funds: 2.918%30-yr Fixed-rate Mortgage 6.88%15-yr Fixed-rate Mortgage 6.34%1-yr ARM 6.12% [HSH averages rates: 30-yr down 8 bps, 15-yr down 19 bps; 1-yr ARM up 20 bps]
Mortgage Bankers Association Mortgage Applications Index week ending 6/20 Overall 461.3 (down 9.2%; down 8.8% the week prior) Purchase Money Loans 333.4 (down 7.3%; down 4.4% the week prior) Refinancing Loans 1212.2 (down 12.1%; down 15% the week prior)
Weekly Jobless Claims 6/21 384,000 first computation – 384,000 prior week (with 3,000 upward revision)
New Home Sales May Down 2.5% from April 2008, down 40.3% from May 2007
Existing Home Sales May Up 2% from April 2008, down 15.9% from May 2007 – 10.8 months’ worth of homes available
