Weekly Economic Update- Sept. 26
September 26th, 2007The “R” word is in the air, in spite of everyone’s gratitude to the Fed for giving us a 50 basis point rate reduction. Economic indicators are beginning to point toward a slowdown in far more than the real estate sector…notably in consumer confidence as well. It’s time to watch the indicators with extra care…and that’s just what we’ll continue to do each week.
Warm regards,
Steve Peterson, Branch Manager
Chase Home Finance
Office: (800) 894-5440 Ext. 214
Cell: (775) 219-7151
KEY INDICATORS Gold $738.60/ounce [up]Crude Oil (Brent) $77.80/barrel [up]U.S. Dollar to… Euro .7073 [down] Japanese Yen 114.99 [down]6-mo Treasury Bill Yield 4.06%10-yr Treasury Note Yield 4.61% [6-mo down 25 bps, 10-yr up 12 bps]30-yr Fixed-rate Mortgage 6.79%15-yr Fixed-rate Mortgage 6.39%1-yr ARM 6.47% [HSH average rates: 30-yr down 7 bps, 15-yr down 16 bps; ARM up 13 bps] Mortgage Bankers Association Mortgage Applications Index week ending 9/14 Overall 673.2 (up 2.4%; up 5.5% the week prior) Purchase Money Loans 452.0 (up 0.9%; up 5.2% the week prior) Refinancing Loans 1962.0 (up 4.6%; up 6% the week prior) Weekly Jobless Claims 9/15311,000 first computation – 320,000 prior week (with 1,000 upward revision) Consumer Price Index (CPI) Aug Down 0.1% - core level (w/o food & energy prices) up 0.2% Housing Starts Aug Down 2.6% - new permits down 5.9%
Weekly Commentary Thumbnail Sketch: The big news—still—is the Fed’s 50 basis point rate reduction of last week. The big question—still—is what lasting effect, if any, this will have on the real estate and mortgage markets, as well as the overall economy. It is worth mentioning that the volume of existing home sales, as reported by the National Association of Realtors®, was down by 4.3% from July to August. But the weakness was not at all confined to the real estate market in this past week’s indicators. The Conference Board’s Index of Leading Indicators took a 0.6% dive from July to August—this deserves to be watched, though it doesn’t mean much until we see a trend forming. The Conference Board’s Index of Consumer Confidence also fell significantly (September reading) from August’s 105.0 to 99.8—its lowest level since November, 2005. And unusually important—we haven’t reported on this for many months—was the week’s chain store snapshot, which showed sales declining by a solid 1% after a 1.1% dip the week before. It’s time to watch retail sales very closely. If a downward trend establishes itself, we may well be headed toward recession. The same, of course, can be said of consumer confidence, which translates into lower retail purchase levels as it declines. And that is precisely the worry that economists have begun to voice. Our economy, weighed down by credit problems and worries, may indeed be headed toward recession—unless confidence remains adequately high among consumers and businesses. It is, with little question, a slowdown in retail and investment purchases that could bring the economic expansion to a (perhaps short) standstill. The fact that investors are beginning to put their money into private equity (hedge funds, mortgages) once again should be greeted with relief. But the challenge right now is to keep the overall economy afloat, and the real estate market isn’t likely to help in the slightest at this point—in stark contrast to the support given the overall economy by the real estate sector until this year. Which leads us back to the question of what the 50 basis point rate reduction will do for us. It will give us lower construction loans, lower HELOC rates, and maybe lower ARM rates—though many interest rates are unlikely to fall if the investment world thinks the markets are healing and headed toward higher inflation. This doesn’t worry us greatly, however. On the other hand, 50 basis points—granted, a good gesture—is very far from a panacea. It’s time, nonetheless, to start seeking out favorable real estate deals.
