The White House temporarily suspends a rule that imposes a 90-day waiting period before foreclosed homes can be sold to receive government loans.
WASHINGTON (AP) -- The Bush administration is temporarily suspending a 5-year-old rule intended to deter property flippers, as part of an effort to help speed the sale of foreclosed properties.
For one year, the Federal Housing Administration will no longer impose a 90-day waiting period before foreclosed properties can be sold to receive government-backed loans.
The policy was put in place in 2003 to deter property "flipping" schemes, in which buyers are overcharged for foreclosures or other distressed properties. But the surge in vacant properties resulting from borrowers who were unable to afford their mortgages has become a far more pressing concern.
"A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community's recovery," FHA commissioner Brian Montgomery said in a prepared statement.
The new policy "will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes," Montgomery said.
Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48% from the same month last year, and up 7% from April, foreclosure listing company RealtyTrac Inc. said Friday.
Wednesday, June 18, 2008
Monday, June 09, 2008
Lenders slash prices to dump foreclosed homes
Article from MSNBC.com
Lenders slash prices to dump foreclosed homes
Lenders slash prices to dump foreclosures, days of multiple offers return
The Associated Press updated 11:18 a.m. MT, Sun., June. 8, 2008
Lenders stung by the housing bust are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars in some places that harken back to the market's go-go years and may signal the bottom is near.
The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously. Sales of foreclosures, vacant new homes and other distressed properties now dominate some markets, causing grief for individual homeowners who need to sell for other reasons, like a job in a new city.
Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, said Mark Zandi, chief economist at Moody's Economy.com. The number can be as high as 90 percent in some newly built subdivisions, where loose lending standards and speculation ran rampant, real estate agents say.
By setting prices at extraordinarily low levels, say, $175,000 for a house that sold for $350,000 three years ago, banks can spark multiple offers.
"It's not uncommon to have 10 to 20 offers on one house, and for the house to end up selling for more than its market price," said Erin Attardi, a Sacramento Realtor. The strategy, she said, allows the bank to be selective, picking buyers with solid financing or those able to pay in cash.
Over the past year, as the housing crisis accelerated, the number of properties turned over to bank ownership has more than doubled. As of April, there were more than 660,000 such properties in the U.S., up from 254,000 in April last year, according to real estate information company First American CoreLogic.
And there's a risk this isn't the bottom at all.
Investor demand could be swamped by the foreclosures expected to hit the market over the next year.
A record of almost 3 million American homeowners were at least one month late on their mortgages in the first quarter, the Mortgage Bankers Association said Thursday. And another record of almost 450,000 had entered the final stage of foreclosure.
Wherever the turning point, buyers are finding that the deep discounts on bank-owned homes can be a fabulous opportunity, but also a source of anguish. Sally Zuniga, 29, and her husband have been looking to buy their first home outside Sacramento and have been unsuccessful so far due to the intense competition.
"It's been aggravating, frustrating and emotionally straining," said Zuniga, a media buyer for an advertising agency.
This week, the couple put in an offer for a three-bedroom house with a pool that's listed as a "short sale," where the home is sold for less than the amount owed on the mortgage.
They've given the property owner until July 18 to respond — an indication of the longer period it commonly takes for such arrangements to be worked out. Their offer of $195,000 was $6,000 over the asking price, in an effort to make it stand out from competitors.
Some in the real estate industry see such competition as a sign that the housing market's gloom is lifting.
"It's actually stimulated the market," said Janice Ziesig, owner of Z House Realty Group in Orlando, Fla. "Things are moving now — more so than they were."
In the Orlando area, about a third of bank-owned properties receive more than one offer, Ziesig estimates. However, deals are more likely to fall through for foreclosures, she says, and properties often return to the market.
For would-be sellers who need to move soon, it's a particularly painful situation. In many cases, sellers whose houses are now worth less than their mortgage must bring cash to the closing table to pay off the balance of the loan. They can find renters or postpone their moving plans.
Leslie Jordan pulled her family's six-bedroom house outside Orlando, Fla., off the market last month after listing it for nearly a year. She was willing to sell for $415,000, down from her original asking price of $565,000, but wasn't able to reach a deal.
While most of the foreclosures in Jordan's area are on smaller homes, the overall environment of soaring foreclosures and overbuilding has pushed prices down dramatically.
"The buyers, they just want a deal," said Jordan, who had hoped to move to a less-dense area with better schools. "We just have to wait until things turn around."
For real estate agents, helping banks sell off properties is one of the only flourishing businesses these days. But it's not for everybody.
Agents can easily pay hundreds of dollars a month on upkeep — including utility bills, cleaning and lawn care — and must go through the hassle of getting reimbursed by the bank. They sometimes have to evict homeowners, tenants or squatters. And in many cases, they have to deal with vandalism or theft of everything from copper pipes to appliances and air conditioners.
Jeff Dolfinger, a broker in Poughkeepsie N.Y., who specializes in managing and selling foreclosed properties, estimates that about 90 percent of those homes in his market are being bought by investors.
"To them, this is the best real estate market ever," he said. "They'll wait for this turmoil to end and they'll put the properties right back on the market again"
Inevitably, there are tensions between real estate agents and mortgage companies, particularly when a short sale or foreclosure gets tied up in a bureaucratic tangle.
"The lenders don't work on the weekends," which are the busiest time for house-hunters, said Cindy Jones, associate broker with Re/Max Allegiance in Lakeridge, Va. "If you make on offer on a Thursday, the earliest anybody's going to (examine) it is Monday or Tuesday of the following week,"
A quick way for a lender to dispose of properties is through an auction. However, lenders lose an average of 56 percent of a property's value through auctions, compared with a 40 percent loss for ordinary sales, according to a report last month by Fitch Ratings.
Nevertheless, the report found that the use of auctions has been rising as lenders try to cope with rising inventory.
Some are more hesitant to cut prices. Chris Bowden, vice president of HomeSteps, a division of Freddie Mac that handles foreclosure sales, says being too aggressive on price can affect the value of nearby properties, which sometimes are also owned by Freddie Mac.
"We want to make sure that we are getting back every dollar that we can and preserving values in neighborhoods," Bowden said. "Our goal is to try to get the highest value we can for the property, and yet we've got to remain competitive."
Still, with foreclosures continuing to rise, there may be no better option than to follow the market.
"We're reacting to market conditions very quickly," said Cary Sternberg, who heads IndyMac Bancorp Inc.'s bank-owned properties division. "We're in the business of making loans to people. we're not in the business of owning property."
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
URL: http://www.msnbc.msn.com/id/25009827/
Lenders slash prices to dump foreclosed homes
Lenders slash prices to dump foreclosures, days of multiple offers return
The Associated Press updated 11:18 a.m. MT, Sun., June. 8, 2008
Lenders stung by the housing bust are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars in some places that harken back to the market's go-go years and may signal the bottom is near.
The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously. Sales of foreclosures, vacant new homes and other distressed properties now dominate some markets, causing grief for individual homeowners who need to sell for other reasons, like a job in a new city.
Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, said Mark Zandi, chief economist at Moody's Economy.com. The number can be as high as 90 percent in some newly built subdivisions, where loose lending standards and speculation ran rampant, real estate agents say.
By setting prices at extraordinarily low levels, say, $175,000 for a house that sold for $350,000 three years ago, banks can spark multiple offers.
"It's not uncommon to have 10 to 20 offers on one house, and for the house to end up selling for more than its market price," said Erin Attardi, a Sacramento Realtor. The strategy, she said, allows the bank to be selective, picking buyers with solid financing or those able to pay in cash.
Over the past year, as the housing crisis accelerated, the number of properties turned over to bank ownership has more than doubled. As of April, there were more than 660,000 such properties in the U.S., up from 254,000 in April last year, according to real estate information company First American CoreLogic.
And there's a risk this isn't the bottom at all.
Investor demand could be swamped by the foreclosures expected to hit the market over the next year.
A record of almost 3 million American homeowners were at least one month late on their mortgages in the first quarter, the Mortgage Bankers Association said Thursday. And another record of almost 450,000 had entered the final stage of foreclosure.
Wherever the turning point, buyers are finding that the deep discounts on bank-owned homes can be a fabulous opportunity, but also a source of anguish. Sally Zuniga, 29, and her husband have been looking to buy their first home outside Sacramento and have been unsuccessful so far due to the intense competition.
"It's been aggravating, frustrating and emotionally straining," said Zuniga, a media buyer for an advertising agency.
This week, the couple put in an offer for a three-bedroom house with a pool that's listed as a "short sale," where the home is sold for less than the amount owed on the mortgage.
They've given the property owner until July 18 to respond — an indication of the longer period it commonly takes for such arrangements to be worked out. Their offer of $195,000 was $6,000 over the asking price, in an effort to make it stand out from competitors.
Some in the real estate industry see such competition as a sign that the housing market's gloom is lifting.
"It's actually stimulated the market," said Janice Ziesig, owner of Z House Realty Group in Orlando, Fla. "Things are moving now — more so than they were."
In the Orlando area, about a third of bank-owned properties receive more than one offer, Ziesig estimates. However, deals are more likely to fall through for foreclosures, she says, and properties often return to the market.
For would-be sellers who need to move soon, it's a particularly painful situation. In many cases, sellers whose houses are now worth less than their mortgage must bring cash to the closing table to pay off the balance of the loan. They can find renters or postpone their moving plans.
Leslie Jordan pulled her family's six-bedroom house outside Orlando, Fla., off the market last month after listing it for nearly a year. She was willing to sell for $415,000, down from her original asking price of $565,000, but wasn't able to reach a deal.
While most of the foreclosures in Jordan's area are on smaller homes, the overall environment of soaring foreclosures and overbuilding has pushed prices down dramatically.
"The buyers, they just want a deal," said Jordan, who had hoped to move to a less-dense area with better schools. "We just have to wait until things turn around."
For real estate agents, helping banks sell off properties is one of the only flourishing businesses these days. But it's not for everybody.
Agents can easily pay hundreds of dollars a month on upkeep — including utility bills, cleaning and lawn care — and must go through the hassle of getting reimbursed by the bank. They sometimes have to evict homeowners, tenants or squatters. And in many cases, they have to deal with vandalism or theft of everything from copper pipes to appliances and air conditioners.
Jeff Dolfinger, a broker in Poughkeepsie N.Y., who specializes in managing and selling foreclosed properties, estimates that about 90 percent of those homes in his market are being bought by investors.
"To them, this is the best real estate market ever," he said. "They'll wait for this turmoil to end and they'll put the properties right back on the market again"
Inevitably, there are tensions between real estate agents and mortgage companies, particularly when a short sale or foreclosure gets tied up in a bureaucratic tangle.
"The lenders don't work on the weekends," which are the busiest time for house-hunters, said Cindy Jones, associate broker with Re/Max Allegiance in Lakeridge, Va. "If you make on offer on a Thursday, the earliest anybody's going to (examine) it is Monday or Tuesday of the following week,"
A quick way for a lender to dispose of properties is through an auction. However, lenders lose an average of 56 percent of a property's value through auctions, compared with a 40 percent loss for ordinary sales, according to a report last month by Fitch Ratings.
Nevertheless, the report found that the use of auctions has been rising as lenders try to cope with rising inventory.
Some are more hesitant to cut prices. Chris Bowden, vice president of HomeSteps, a division of Freddie Mac that handles foreclosure sales, says being too aggressive on price can affect the value of nearby properties, which sometimes are also owned by Freddie Mac.
"We want to make sure that we are getting back every dollar that we can and preserving values in neighborhoods," Bowden said. "Our goal is to try to get the highest value we can for the property, and yet we've got to remain competitive."
Still, with foreclosures continuing to rise, there may be no better option than to follow the market.
"We're reacting to market conditions very quickly," said Cary Sternberg, who heads IndyMac Bancorp Inc.'s bank-owned properties division. "We're in the business of making loans to people. we're not in the business of owning property."
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
URL: http://www.msnbc.msn.com/id/25009827/
Friday, June 06, 2008
Economic Highlights for the Week Ending June 6, 2008
MONDAY, June 2nd
It is widely expected for the Fed to remain on hold at the June 24-25 FOMC meeting. Just how long the Fed will remain on hold is another matter as policymakers try to juggle weak economic conditions with rising inflation. Traders believe there is a 60% chance the Fed will start to unwind policy easing as soon as December. The trajectory of the data between now and then will nail things down more precisely.
Construction spending faltered again in April, based on weakness in the residential sector however, overall spending declines were slightly less than expected. Construction spending fell 0.4% in April compared to an expected 0.6% decline. With nonresidential construction spending more volatile and budget strains on state and local governments affecting public sector spending, overall construction spending is expected to remain weak through this year and the first part of 2009.
The ISM index increased to 49.6% in May from a 48.6% reading in April. The level of the index suggests that manufacturing activity nationwide continued to contract last month but at a slower pace than in previous months. An index reading over the 50% level indicates expansion in the sector. Details in the data showed still weak employment, slightly improved production and higher input prices.
TUESDAY, June 3rd
Fed Chairman Ben Bernanke, in remarks to the International Monetary Conference, said that the Fed is aware of the implications of changes in the value of the dollar on inflation and will work with the Treasury to monitor foreign exchange markets. The Chairman was referring to the 16% drop in the dollar against the euro in the past year and its impact on inflation. Bernanke also signaled that the FOMC is done with policy easing for now and that interest rates are well positioned to promote growth and stabilize prices.
WEDNESDAY, June 4th
The MBA mortgage applications index fell 15.3% to 502.3% for the week ending May 30. Purchase application volume remains soft dropping 5.4% on the week to bring the yearly decline to 23.1%. The refinance index plunged 25.7% last week in response to higher rates. With this decline, refinancing activity is down 14.9% from its year ago level. Application activity for both refis and purchases is trending lower under weak home sales and tougher loan standards.
The ISM non-manufacturing index slipped to 51.7% in May from a level of 52.0% in April. A reading over the key 50% level indicates expansion in the service sector. Construction, government, financial and other service industries grew moderately last month amid rising price pressures and declining employment. Given residential construction weakness and turmoil in the mortgage market, service sector activity is expected to remain soft going forward.
THURSDAY, June 5th
Chain store sales rose 3.0% in May from May of a year ago, on a same-store basis according to the ICSC index. May’s stronger-than expected gain led by sales at wholesale, discount and drug stores. Sales at apparel and department stores declined sharply. Consumers are spending, albeit cautiously as they contend with high gas prices, debt burdens, falling home values and weak job growth.
Jobless claims decreased 18k to 357k for the week ending May 31. The decline could be related to the Memorial Day holiday. The pace of layoffs remains elevated but has stopped accelerating indicating soft labor market conditions.
FRIDAY, June 6th
Payroll employment declined by 49,000 jobs in May compared to an estimated 60,000 drop. This was the fifth consecutive decline in payrolls for a total job loss of 324k since the first of the year. Weakness was broad based with only education, health services, leisure, and government sectors of the economy adding to the payrolls. The unemployment rate jumped to 5.5% in May from 5.0% in April due to a large increase in the workforce combined with sub-par job creation.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12209.81 12638.32 -428.51 or -3.39%
NASDAQ 2474.56 2522.66 -48.10 or -1.91%
WEEK IN ADVANCE
The employment report pushes back the timetable for when the Fed will be able to start raising rates. Inflation remains the wild card if it does not ease under slower economic conditions. The consumer price index due out Friday in the coming week will identify the current level of consumer inflation.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
It is widely expected for the Fed to remain on hold at the June 24-25 FOMC meeting. Just how long the Fed will remain on hold is another matter as policymakers try to juggle weak economic conditions with rising inflation. Traders believe there is a 60% chance the Fed will start to unwind policy easing as soon as December. The trajectory of the data between now and then will nail things down more precisely.
Construction spending faltered again in April, based on weakness in the residential sector however, overall spending declines were slightly less than expected. Construction spending fell 0.4% in April compared to an expected 0.6% decline. With nonresidential construction spending more volatile and budget strains on state and local governments affecting public sector spending, overall construction spending is expected to remain weak through this year and the first part of 2009.
The ISM index increased to 49.6% in May from a 48.6% reading in April. The level of the index suggests that manufacturing activity nationwide continued to contract last month but at a slower pace than in previous months. An index reading over the 50% level indicates expansion in the sector. Details in the data showed still weak employment, slightly improved production and higher input prices.
TUESDAY, June 3rd
Fed Chairman Ben Bernanke, in remarks to the International Monetary Conference, said that the Fed is aware of the implications of changes in the value of the dollar on inflation and will work with the Treasury to monitor foreign exchange markets. The Chairman was referring to the 16% drop in the dollar against the euro in the past year and its impact on inflation. Bernanke also signaled that the FOMC is done with policy easing for now and that interest rates are well positioned to promote growth and stabilize prices.
WEDNESDAY, June 4th
The MBA mortgage applications index fell 15.3% to 502.3% for the week ending May 30. Purchase application volume remains soft dropping 5.4% on the week to bring the yearly decline to 23.1%. The refinance index plunged 25.7% last week in response to higher rates. With this decline, refinancing activity is down 14.9% from its year ago level. Application activity for both refis and purchases is trending lower under weak home sales and tougher loan standards.
The ISM non-manufacturing index slipped to 51.7% in May from a level of 52.0% in April. A reading over the key 50% level indicates expansion in the service sector. Construction, government, financial and other service industries grew moderately last month amid rising price pressures and declining employment. Given residential construction weakness and turmoil in the mortgage market, service sector activity is expected to remain soft going forward.
THURSDAY, June 5th
Chain store sales rose 3.0% in May from May of a year ago, on a same-store basis according to the ICSC index. May’s stronger-than expected gain led by sales at wholesale, discount and drug stores. Sales at apparel and department stores declined sharply. Consumers are spending, albeit cautiously as they contend with high gas prices, debt burdens, falling home values and weak job growth.
Jobless claims decreased 18k to 357k for the week ending May 31. The decline could be related to the Memorial Day holiday. The pace of layoffs remains elevated but has stopped accelerating indicating soft labor market conditions.
FRIDAY, June 6th
Payroll employment declined by 49,000 jobs in May compared to an estimated 60,000 drop. This was the fifth consecutive decline in payrolls for a total job loss of 324k since the first of the year. Weakness was broad based with only education, health services, leisure, and government sectors of the economy adding to the payrolls. The unemployment rate jumped to 5.5% in May from 5.0% in April due to a large increase in the workforce combined with sub-par job creation.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12209.81 12638.32 -428.51 or -3.39%
NASDAQ 2474.56 2522.66 -48.10 or -1.91%
WEEK IN ADVANCE
The employment report pushes back the timetable for when the Fed will be able to start raising rates. Inflation remains the wild card if it does not ease under slower economic conditions. The consumer price index due out Friday in the coming week will identify the current level of consumer inflation.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, May 31, 2008
Economic Highlights for the Week Ending May 30, 2008
MONDAY, May 26th
MEMORIAL DAY All Markets Closed
TUESDAY, May 27th
Consumer confidence sank to a 16-year low in May, falling to 57.2% from a reading of 62.8% in April. Consumers' assessments of current and future economic conditions continue to deteriorate sharply under surging inflation expectations. Such low confidence levels along with other burdens consumers are shouldering could severely impact spending thus slowing economic growth even further.
New home sales increased 3.3% in April to a pace of 526,000, better than an expected decline to a rate of 522,000. However, sales in March were revised sharply lower to 509,000 from 526,000 in the first estimate. April's figures will be subject to revision as well because new home sales track the number of signed contracts and do not reflect the number of cancellations, which have been high because of tighter credit and tougher standards for loans. Even with the apparent rebound in April, new home sales remain quite weak. The market is showing some signs of stabilizing though in reduced inventory levels and firmer prices.
The Case-Shiller home price index fell 14.1% in the first quarter from the same quarter one year ago. It was the steepest drop in home prices since the inception of the index in 1988. The largest declines were in the Las Vegas, Miami and Phoenix markets.
WEDNESDAY, May 28th
The MBA mortgage applications index fell 4.6% to 593.3% for the week ending May 23. Total mortgage application volume is down 6.8% from its year ago level. The purchase index edged 0.1% higher as the refinance index tumbled 8.9%. Purchase applications remain 17.4% below its year ago level indicating sluggish home buying demand while refinancing activity continues to be hampered by interest rates.
Durable goods orders fell 0.5% in April compared to expectations for a 2.0% decline. The gain was led by demand for electrical equipment though orders for primary metals, machinery and defense goods also increased strongly. Orders for non-defense capital goods excluding aircraft, a proxy for business investment rose 4.2% last month, signally a pocket of strength in otherwise sluggish economic conditions.
A Fed official hinted, in prepared remarks today that a rate hike may not be far off. Indeed, fed funds futures traders are pricing in a 73% chance of a quarter point bump in December. The economic data in the meantime will help determine the timing of policy reversal.
THURSDAY, May 29th
Growth was a tad better in the first quarter according to the preliminary estimate of GDP. The economy grew at a 0.9% pace in Q1 compared to advance estimate of 0.6% growth. A measure of economy-wide inflation remained unchanged at 2.6% last quarter.
Jobless claims rose 4k to 372k for the week ending May 24. Claims levels are consistent with a high pace of layoffs however they are not accelerating. Also, claims data suggest that job creation remains weak
Mortgage rates drifted higher this week over increasing expectations that the Fed may need to raise rates sooner rather than later to tame inflationary pressures. Also, recent economic data suggests the economy is not as weak as anticipated by the financial markets. 30-year fixed rate mortgages averaged 6.08% this week compared to 5.98% last week according to Freddie Mac's mortgage market survey.
FRIDAY, May 30th
Personal income rose 0.2% in April led strong transfer payments such as rental income. Wage and salary growth actually declined on the month. Consumer spending increased 0.2% last month, as expected, but has declined sharply in the last three months reflecting slower economic conditions. The core PCE price index, a favorite inflation measure for the Fed, rose a mild 0.1% on the month and 2.1% on the year, which is just over the Fed’s implicit target for core inflation.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12638.32 12479.63 +158.69 or +1.27%
NASDAQ 2522.66 2444.67 +77.99 or +3.19%
WEEK IN ADVANCE
With the Fed presumably on hold, the economic data coming in a bit better than expected and inflationary pressure in play interest rates are facing upward pressure in the weeks ahead. The economic story has largely been better but still weak which should keep a lid on rates climbing too far, too fast.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, May 24, 2008
Economic Highlights for the Week Ending May 23, 2008
MONDAY, May 19th
The Fed is expected to hold rates steady until the inflation outlook can be sorted out. Fed funds futures traders are pricing in an 80% probability the Fed will hold the fed funds target at its current level of 2.0% at the June meeting. The hope is that policy stimulus in the pipeline will help restore solid economic growth but in the meantime, slower economic growth will help to curtail inflationary pressures. The Fed will need some time to observe this happening and confirm it through the economic data.
The index of leading economic indicators rose 0.1% in April better than expected. Like a lot of economic data recently, the LEI is signaling that economic activity has stalled, but not collapsed and that recovery may still take a while. The level of the index is consistent with continued sluggish growth over the next six to nine months.
TUESDAY, May 20th
The producer price index increased 0.2% in April less than an expected gain of 0.4% as food and energy costs subsided during the month. Over the last year, producer prices have increased 6.4%, one of its fastest paces in the past 25 years. Excluding food and energy prices, the core PPI jumped 0.4% last month and gained 3.0% over the last year. A temporary reprieve in catapulting food and energy costs brought underlying price pressures to bear from earlier stages of processing. Upward price pressures from food and energy are expected to resume in the months ahead.
WEDNESDAY, May 21st
The MBA mortgage applications index fell 7.8% to 621.6% for the week ending May 16. The purchase index fell 6.9% on the week and remains 19.5% lower than its year ago level. The refinance index tumbled 8.7% last week but is up 2.6% over last year. Mortgage rates have yet to respond to substantial Fed easing. Stubborn rates combined with falling home values, tighter credit and weak economic conditions have crimped loan demand and dried up many refinancing opportunities. It appears the housing market is still searching for a bottom.
The minutes from the April 29-30 FOMC meeting showed that the quarter point cut at that time was a close call and future cuts would be unlikely even if the economic conditions worsened. Policy makers then turned their attention to financial markets and inflation as the primary drivers of policy decisions. Accompanying the release of the meeting minutes was the latest Fed forecast which projected even slower growth and higher inflation and unemployment. Growth for 2008 is expected to be between 0.3% and 1.2% down from 1.2% to 2.0% previously, unemployment was forecast to be between 5.5% and 5.7% up from 5.2% to 5.5% earlier and inflation was projected to rise between 3.1% and 3.4% from 2.1% to 2.4% originally.
WEDNESDAY, May 21st
Long term mortgage rates eased somewhat on a couple of weaker-than-expected economic reports last week. Consumer sentiment dropped to a multi-decade low while industrial output declined sharply. 30-year fixed rate mortgages averaged 5.98% this week compared to 6.01% last week according to Freddie Mac's mortgage market survey. Short term mortgage rates were a bit higher on average related to expectations that Fed is done cutting rates for now.
Jobless claims fell 9k to 365k for the week ending May 17. Initial claims have leveled off in recent weeks indicating a stable, but elevated pace of layoffs. Continuing claims continue to trend higher indicating weak job creation. Jobless claims data suggest another weak employment report for May, due to be released June 6.
FRIDAY, May 23rd
Existing homes sales fell 1.0% in April to an annualized pace of 4.89 million compared to expectations for a larger decline to a rate of 4.85 million according to the National Association of Realtors. Sales declines have slowed recently indicting still weak but stable housing market conditions. Lower prices and low interest rates are stimulating sales increases in some areas, reports the NAR.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12479.63 12986.80 -501.17 or -3.90%
NASDAQ 2444.67 2528.85 -84.18 or -3.32%
WEEK IN ADVANCE
In the week ahead, inflation remains the key to the interest rate outlook. Some of the economic data and Fedspeak will address inflation concerns while the financial markets will continue to battle with rising oil prices and their impact on the economy and inflation.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, May 17, 2008
Economic Highlights for the Week Ending May 16, 2008
MONDAY, May 12th
It looks like the Fed will be on hold for the next few meetings. Fed funds futures traders are pricing in roughly an 85% probability the fed funds rate target will remain unchanged at 2.00% following the June 25 FOMC meeting. With policy currently accommodative, the Fed believes they have addressed growth conditions for now. Inflation remains a concern though and further lowering of rates could exacerbate price pressures.
TUESDAY, May 13th
Retail sales fell 0.2% in April as expected. Weak motor vehicle & parts sales led the decline last month. Sales at gas stations also fell, despite higher prices. Excluding autos, retail sales jumped 0.5% on surprising gains at building supply and electronics and appliance stores. Excluding autos and gas, core retail sales gained 0.6% on the month. Despite the strength in core retail sales, consumer spending has been trending lower and is expected to remain weak going forward.
Import prices jumped 1.8% in April, largely in line with expectations. Petroleum prices once again led the advance though food prices boosted import costs as well. Excluding petroleum, import prices still rose 1.1% on the month showing a transfer of percolating inflationary pressures from abroad to the domestic economy.
The National Association of Realtors reported that the national median house price fell 7.7% in Q1 from the same period one year ago and was down 4.6% from Q4. That was the largest year-over-year drop in home prices since the NAR started tracking them in 1982. The national median sales price now stands at $196,300, the first time below 200k since the onset of the housing bubble 5 years ago.
WEDNESDAY, May 14th
The consumer price index increased 0.2% in April, a bit lower than an expected 0.3% gain. A 0.9% jump in food prices fed the gain as energy prices remained, surprisingly unchanged on the month. Excluding food and energy prices from the index, the core CPI rose just 0.1% to bring the yearly gain to 2.3%. Consumer inflation is somewhat higher than the Fed would like to see however it appears to be easing mildly under weak economic conditions.
The MBA mortgage applications index rose 2.9% to 674.4% for the week ending May 9. The purchase index fell 0.7% on the week and is down 12.4% from one year ago. The refinance index jumped 6.5% on a weekly basis and is up 14.5% its year ago level. Low rates are boosting refinance activity while falling home values are deterring prospective home buyers, thus weighing on purchase application volumes.
THURSDAY, May 15th
The NAHB housing market index fell to 19 in May from a level of 20 in April. Already at a severely depressed level, it was disheartening to observe another drop in sentiment. All three components of the index, ratings of present sales, sales six months from now and buyer traffic moved lower on the month. Builder sentiment remained mired at a low point as falling home values and tougher lending standards continue to deter buyers and curb demand.
Industrial production fell 0.7% in April, more than double expectations for a 0.3% decline. Sharp drops in mining and manufacturing output led to the large decline in overall production. Utility production gained on the month. The amount of capacity used for production fell sharply as well to 79.7% from 80.4% previously. Easing capacity utilization rates indicate some slack in resource usage, which will help to lower inflation.
FRIDAY, May 16th
Housing starts increased 8.2% in April to an annual rate of 1.032 million compared to an expected decline to a pace of 935k. After falling in March to their lowest level since 1991, starts unexpectedly rebounded in April. It is good to see starts over the million mark again; however they remain quite weak. High inventory levels compounded by weak new home sales and low home builder sentiment will keep new construction activity in the cellar for a while longer.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12986.80 12745.88 +240.92 or +1.89%
NASDAQ 2528.85 2445.52 +83.33 or +3.41%
WEEK IN ADVANCE
There are a couple of hurdles in the week ahead on an otherwise light economic calendar. The producer price index on Tuesday is the next major inflation reading. Inflation remains the key to the current on-hold stance for the Fed. Also, existing home sales, due out Friday will relay the latest data from the housing sector.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
It looks like the Fed will be on hold for the next few meetings. Fed funds futures traders are pricing in roughly an 85% probability the fed funds rate target will remain unchanged at 2.00% following the June 25 FOMC meeting. With policy currently accommodative, the Fed believes they have addressed growth conditions for now. Inflation remains a concern though and further lowering of rates could exacerbate price pressures.
TUESDAY, May 13th
Retail sales fell 0.2% in April as expected. Weak motor vehicle & parts sales led the decline last month. Sales at gas stations also fell, despite higher prices. Excluding autos, retail sales jumped 0.5% on surprising gains at building supply and electronics and appliance stores. Excluding autos and gas, core retail sales gained 0.6% on the month. Despite the strength in core retail sales, consumer spending has been trending lower and is expected to remain weak going forward.
Import prices jumped 1.8% in April, largely in line with expectations. Petroleum prices once again led the advance though food prices boosted import costs as well. Excluding petroleum, import prices still rose 1.1% on the month showing a transfer of percolating inflationary pressures from abroad to the domestic economy.
The National Association of Realtors reported that the national median house price fell 7.7% in Q1 from the same period one year ago and was down 4.6% from Q4. That was the largest year-over-year drop in home prices since the NAR started tracking them in 1982. The national median sales price now stands at $196,300, the first time below 200k since the onset of the housing bubble 5 years ago.
WEDNESDAY, May 14th
The consumer price index increased 0.2% in April, a bit lower than an expected 0.3% gain. A 0.9% jump in food prices fed the gain as energy prices remained, surprisingly unchanged on the month. Excluding food and energy prices from the index, the core CPI rose just 0.1% to bring the yearly gain to 2.3%. Consumer inflation is somewhat higher than the Fed would like to see however it appears to be easing mildly under weak economic conditions.
The MBA mortgage applications index rose 2.9% to 674.4% for the week ending May 9. The purchase index fell 0.7% on the week and is down 12.4% from one year ago. The refinance index jumped 6.5% on a weekly basis and is up 14.5% its year ago level. Low rates are boosting refinance activity while falling home values are deterring prospective home buyers, thus weighing on purchase application volumes.
THURSDAY, May 15th
The NAHB housing market index fell to 19 in May from a level of 20 in April. Already at a severely depressed level, it was disheartening to observe another drop in sentiment. All three components of the index, ratings of present sales, sales six months from now and buyer traffic moved lower on the month. Builder sentiment remained mired at a low point as falling home values and tougher lending standards continue to deter buyers and curb demand.
Industrial production fell 0.7% in April, more than double expectations for a 0.3% decline. Sharp drops in mining and manufacturing output led to the large decline in overall production. Utility production gained on the month. The amount of capacity used for production fell sharply as well to 79.7% from 80.4% previously. Easing capacity utilization rates indicate some slack in resource usage, which will help to lower inflation.
FRIDAY, May 16th
Housing starts increased 8.2% in April to an annual rate of 1.032 million compared to an expected decline to a pace of 935k. After falling in March to their lowest level since 1991, starts unexpectedly rebounded in April. It is good to see starts over the million mark again; however they remain quite weak. High inventory levels compounded by weak new home sales and low home builder sentiment will keep new construction activity in the cellar for a while longer.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12986.80 12745.88 +240.92 or +1.89%
NASDAQ 2528.85 2445.52 +83.33 or +3.41%
WEEK IN ADVANCE
There are a couple of hurdles in the week ahead on an otherwise light economic calendar. The producer price index on Tuesday is the next major inflation reading. Inflation remains the key to the current on-hold stance for the Fed. Also, existing home sales, due out Friday will relay the latest data from the housing sector.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Thursday, May 15, 2008
Economic Highlights for the Week Ending May 9, 2008
MONDAY, May 5th
The ISM non-manufacturing index increased to 52.0% in April from a reading of 49.6% in March. This was the first reading above the key 50% level in four months suggesting expansion in the service industries. A pickup in employment last month is consistent with stronger demand. Nevertheless, service sector activity is trending lower over the long term in part related to the downturn in residential construction and turmoil in mortgage finance industries.
TUESDAY, May 6th
Financial markets expect the Fed to hold off on any other rate adjustments at this time but the question remains “for how long?’ Fed funds futures traders are pricing in just a 15% chance of another rate cut in June. Sentiment is clearly weighted toward no change in rates and for an extended period of time. December futures contracts are priced for the current 2.00% fed funds target rate implying no change in rates for the remainder of this year. Traders are fully pricing in a rate hike to 2.25% in February of next year, of course rate expectations will fluctuate between now and then as new information becomes available.
WEDNESDAY, May 7th
Nonfarm business productivity increased at a strong 2.2% annualized pace in the first quarter, up from 1.8% in Q4. This was well above estimates for a 1.5% rate of growth. Nonfarm unit labor costs rose at a 2.2% annual pace in Q1, slightly less than expected. These data indicate solid productivity growth, despite weaker economic conditions and without associated wage inflation.
Consumer credit increased by $15.3 billion in March, or at a 5.9% annual rate. Revolving credit rose by $6.3 billion as consumers used credit cards to fund consumption. Non-revolving credit shot $9.0 billion higher, which was surprising given anemic auto sales. Expect consumer credit to continue growing at a fairly robust pace, due to sharp declines in mortgage equity withdrawals.
The MBA mortgage applications index jumped 15.6% to 655.4% for the week ending May 2. Despite the gain, total application activity remains 3.7% below last year’s level. The purchase index gained 12.1% on the week but is down 13.0% from one year ago. The refinance index climbed 19.3% this week and is up 7.5% from last year. Lower rates should continue to support application activity going forward.
The pending home sales index dropped 1.0% in March to a level of 83.0, after a reading of 83.8 in February, the NAR reported today. The index remains 20.1% lower than its year ago level. Economists at the NAR forecast flat home sales activity over the next several months with some chance for a pickup in sales activity over the summer, which hinges on the accessibility of more affordable loans.
THURSDAY, May 8th
Chain store sales rose 3.6% in April, much higher than expected, boosted largely by calendar effects related to an early Easter. Wholesale clubs, department, drug and discount stores all posted solid gains last month while sales at furniture and apparel shops declined. Higher gas prices contributed to the sales gains as well. The outlook for spending remains weak going forward with some offset expected to be provided by tax rebate checks currently being sent to consumers.
Jobless claims fell 18k to 365k for the week ending May 3. Despite the decline last week, the level of claims remains elevated which means a large number of layoffs. Moreover, continuing claims have been trending higher over the last two years indicating sluggish job creation and making it difficult for laid off workers to find new jobs.
FRIDAY, May 9th
The international trade deficit narrowed sharply in March while February’s trade gap was less than first reported. The trade deficit dropped to $58.2 billion in March following a $61.7 billion gap in February. The trade picture improved on a $6.1 billion decline in imports related to a weaker domestic economy. Exports also declined on the month, by $2.6 billion, but continue to trend higher due to a weak dollar. The trade gap reduction in March will end up contributing as much as 0.6 percentage points to Q1 GDP growth in the next revision.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12745.88 13058.20 -312.32 or -2.39%
NASDAQ 2445.52 2476.99 -31.47 or -1.27%
WEEK IN ADVANCE
Economists and financial markets will be looking to a host of data releases in the coming week to provide further confirmation that the recession will be short and shallow, with modest inflationary pressures.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
The ISM non-manufacturing index increased to 52.0% in April from a reading of 49.6% in March. This was the first reading above the key 50% level in four months suggesting expansion in the service industries. A pickup in employment last month is consistent with stronger demand. Nevertheless, service sector activity is trending lower over the long term in part related to the downturn in residential construction and turmoil in mortgage finance industries.
TUESDAY, May 6th
Financial markets expect the Fed to hold off on any other rate adjustments at this time but the question remains “for how long?’ Fed funds futures traders are pricing in just a 15% chance of another rate cut in June. Sentiment is clearly weighted toward no change in rates and for an extended period of time. December futures contracts are priced for the current 2.00% fed funds target rate implying no change in rates for the remainder of this year. Traders are fully pricing in a rate hike to 2.25% in February of next year, of course rate expectations will fluctuate between now and then as new information becomes available.
WEDNESDAY, May 7th
Nonfarm business productivity increased at a strong 2.2% annualized pace in the first quarter, up from 1.8% in Q4. This was well above estimates for a 1.5% rate of growth. Nonfarm unit labor costs rose at a 2.2% annual pace in Q1, slightly less than expected. These data indicate solid productivity growth, despite weaker economic conditions and without associated wage inflation.
Consumer credit increased by $15.3 billion in March, or at a 5.9% annual rate. Revolving credit rose by $6.3 billion as consumers used credit cards to fund consumption. Non-revolving credit shot $9.0 billion higher, which was surprising given anemic auto sales. Expect consumer credit to continue growing at a fairly robust pace, due to sharp declines in mortgage equity withdrawals.
The MBA mortgage applications index jumped 15.6% to 655.4% for the week ending May 2. Despite the gain, total application activity remains 3.7% below last year’s level. The purchase index gained 12.1% on the week but is down 13.0% from one year ago. The refinance index climbed 19.3% this week and is up 7.5% from last year. Lower rates should continue to support application activity going forward.
The pending home sales index dropped 1.0% in March to a level of 83.0, after a reading of 83.8 in February, the NAR reported today. The index remains 20.1% lower than its year ago level. Economists at the NAR forecast flat home sales activity over the next several months with some chance for a pickup in sales activity over the summer, which hinges on the accessibility of more affordable loans.
THURSDAY, May 8th
Chain store sales rose 3.6% in April, much higher than expected, boosted largely by calendar effects related to an early Easter. Wholesale clubs, department, drug and discount stores all posted solid gains last month while sales at furniture and apparel shops declined. Higher gas prices contributed to the sales gains as well. The outlook for spending remains weak going forward with some offset expected to be provided by tax rebate checks currently being sent to consumers.
Jobless claims fell 18k to 365k for the week ending May 3. Despite the decline last week, the level of claims remains elevated which means a large number of layoffs. Moreover, continuing claims have been trending higher over the last two years indicating sluggish job creation and making it difficult for laid off workers to find new jobs.
FRIDAY, May 9th
The international trade deficit narrowed sharply in March while February’s trade gap was less than first reported. The trade deficit dropped to $58.2 billion in March following a $61.7 billion gap in February. The trade picture improved on a $6.1 billion decline in imports related to a weaker domestic economy. Exports also declined on the month, by $2.6 billion, but continue to trend higher due to a weak dollar. The trade gap reduction in March will end up contributing as much as 0.6 percentage points to Q1 GDP growth in the next revision.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12745.88 13058.20 -312.32 or -2.39%
NASDAQ 2445.52 2476.99 -31.47 or -1.27%
WEEK IN ADVANCE
Economists and financial markets will be looking to a host of data releases in the coming week to provide further confirmation that the recession will be short and shallow, with modest inflationary pressures.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
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