Monday, October 23rd
Financial markets are speculating the Fed could sound an inflation alarm that could require further rate increases. After pricing in, at the highpoint September 25, a 46% chance of a rate cut for early next year, fed fund futures traders are now pricing in 18% odds of a rate hike.
Tuesday, October 24th
A $20 billion, 2-year note auction was met with strong demand today. The notes were awarded a high yield of 4.894% and received a 2.91 bid-to-cover ratio compared to 2.77 last month. Indirect bidders which include foreign central banks accounted for 31% of the accepted bids today. Treasuries drifted slightly higher in trading Tuesday as the bond market awaited additional Fed guidance tomorrow. In late trading the 10-year note was up 3/32 to 100-13/32 to yield 4.82%.
Wednesday, October 25th
Existing home sales, which includes single-family, town homes, condominiums and co-ops fell 1.9% in September to an annual rate of 6.18 million. Consensus estimates were for a smaller decline to a rate of 6.26 million. Over the last year, home re-sales have declined 14.2%. While it looks as though the market has bottomed, the risks to the outlook remain to the downside. Affordability issues, overcome in the past by low interest rates and creative financing, as well as spent-up demand may continue to impede home sales going forward.
The MBA mortgage applications index rose 0.5% to 588.6% for the week that ended October 20. Purchase application activity slipped 0.6% while refinancing volume rose 1.8%. Mortgage rates have climbed higher in the past few weeks and are slowing the pace of application activity. However, the current level of the MBA index suggests some stabilization in housing market conditions.
The FOMC kept the target for the fed funds rate stable at 5.25% as widely expected today. This was the third straight meeting policy makers remained on hold to further evaluate the impact of the previous 17 rate hikes and other factors influencing the economic outlook. The much anticipated policy statement showed a few minor changes in the language. The Fed first acknowledged the slowing pace of economic growth this year, attributable in part to cooling in housing sector. The economy is expected to continue expanding at a moderate pace. Inflation risks do remain, but seem likely to moderate over time on lower energy prices and previous policy adjustments. The Committee left the door open for additional firming if necessary based on the evolution of economic data on growth and inflation. Economists and analysts agree that from all indications the Fed will remain on hold for an extended period of time.
Thursday, October 26th
New home sales jumped 5.3% in September to an annual rate of 1.075 million. This was the second month in a row that new home sales increased, however both were related to sharp downward revisions in previous months. Even with the increases, new home sales are trending lower and remain 14.2% below sales levels seen last year.
Durable goods orders surged 7.8% in September compared to an expected increase of 1.4%. Demand for big ticket items was led by orders for civilian aircraft last month. Excluding the transportation component, durable goods gained 0.1%. Despite the volatility and some softness in the third quarter, manufacturing activity is poised to pick up in the fourth quarter based on the strength of new orders.
Friday, October 27th
Economic growth in the third quarter fell to its slowest pace in three years weakened primarily by a sharp decline in residential investment. 3Q GDP grew at a 1.6% annual pace compared to 2.6% growth in Q2. Residential investment plunged 17.4% during the quarter which shaved 1.1 points off of total GDP growth. Net exports and inventories also detracted from growth. Positive contributors were consumer spending and business investment. The price index contained in this data series fell to 1.8% in Q3 from 3.3% in Q2.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12090.26 12002.37 +87.89 or +0.73%
NASDAQ 2350.62 2342.30 +8.32 or +0.35%
WEEK IN ADVANCE
The economic calendar is jam-packed next week with indicators from all corners of the economy. So far the Fed's projections of slowing economic growth due to a cooling housing sector helping to control inflationary pressures, are playing out and data in the coming week will be weighed against that scenario.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.75% 6.75%
Fed Discount 6.25% 5.75% 4.75%
Fed Funds 5.25% 4.74% 3.76%
11th District COF 4.277% 3.604% 2.870%
10-Year Note 4.67% 5.07% 4.55%
30-Year Treasury Bond 4.79% 5.15% 4.77%
30-Yr Fixed (FHLMC) 6.40% 6.58% 6.15%
15-Yr Fixed (FHLMC) 6.10% 6.21% 5.69%
1-Yr Adj (FHLMC) 5.60% 5.68% 4.91%
6-Mo Libor (FNMA) 5.3704% 5.1196% 4.2154%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, October 28, 2006
Economic Highlights for the Week Ending October 27, 2006
Wednesday, October 25, 2006
Real Estate Outlook: Buyers Take Note
Dr. David Seiders, chief economist for the National Association of Home Builders, says that housing starts are now down by about 20 percent from levels a year ago - but that should be no surprise.
After all, he says, after years of record housing production, the market had to cool off, "We are in the midst of an inevitable adjustment following boom years when housing market activity soared to unsustainable levels. The market that emerges from the current correction will display good balance between supply and demand, and move to a sustainable trend based on solid underlying fundamentals."
How soon might the turnaround begin? Well, nobody can answer that for certain, but based on his research, Dr. Seiders believes that the end of the down cycle may only be a matter of months away - sometime next spring is a real possibility in many areas.
In the meantime, Dr. Seiders sees an upside for consumers: If you've done your homework on your local market - and you know what's sitting unsold at what price and on what size lot - this may be a very opportune time to get off the sidelines and start making offers.
One important reason why: Dr. Seiders points out that the vast majority of local markets around the country have solid underlying economic fundamentals: Housing may be soft, but - jobs are growing. Household incomes are moving up - and inflation is under control.
Unlike some earlier cyclical downturns, such as the early 1990s recession years, the correction this time around is likely to be relatively brief and not so deep - as long as mortgage rates stay where they are, about a point above historic lows. Corrections could be deeper and longer in those markets where prices got most out of sync with local incomes, but even the majority of those metropolitan areas on the West and East coasts have relatively strong employment bases this time around.
Which raises a very basic question in my mind: When just about every economist in the country is telling us that - we're in a buyer's market, but that the down cycle may not last all that long - isn't this a smart time to be actively involved in real estate, searching for deals?
Written by Kenneth Harney
Real Estate Outlook: Buyers Take Note
Dr. David Seiders, chief economist for the National Association of Home Builders, says that housing starts are now down by about 20 percent from levels a year ago - but that should be no surprise.
After all, he says, after years of record housing production, the market had to cool off, "We are in the midst of an inevitable adjustment following boom years when housing market activity soared to unsustainable levels. The market that emerges from the current correction will display good balance between supply and demand, and move to a sustainable trend based on solid underlying fundamentals."
How soon might the turnaround begin? Well, nobody can answer that for certain, but based on his research, Dr. Seiders believes that the end of the down cycle may only be a matter of months away - sometime next spring is a real possibility in many areas.
In the meantime, Dr. Seiders sees an upside for consumers: If you've done your homework on your local market - and you know what's sitting unsold at what price and on what size lot - this may be a very opportune time to get off the sidelines and start making offers.
One important reason why: Dr. Seiders points out that the vast majority of local markets around the country have solid underlying economic fundamentals: Housing may be soft, but - jobs are growing. Household incomes are moving up - and inflation is under control.
Unlike some earlier cyclical downturns, such as the early 1990s recession years, the correction this time around is likely to be relatively brief and not so deep - as long as mortgage rates stay where they are, about a point above historic lows. Corrections could be deeper and longer in those markets where prices got most out of sync with local incomes, but even the majority of those metropolitan areas on the West and East coasts have relatively strong employment bases this time around.
Which raises a very basic question in my mind: When just about every economist in the country is telling us that - we're in a buyer's market, but that the down cycle may not last all that long - isn't this a smart time to be actively involved in real estate, searching for deals?
Written by Kenneth Harney
Monday, October 23, 2006
Economic Highlights for the Week Ending October 20, 2006
Monday, October 16th
The slowing in the housing market will be watched closely in coming weeks for its broader impact on the economy. The biggest impact could come from the lessening of the wealth effect whereby consumer spending increases along with strong price appreciation and equity extraction. Also, housing related job losses for the most part have yet to show up in labor statistics. Economists expect the housing slowdown to subtract up to 1.0% from GDP in the last half of this year.
Tuesday, October 17th
Producer prices fell 1.3% in September, steeper than an expected 0.7% decline. The drop was predicated on an 8.4% tumble in energy prices during the month. Excluding food and energy from the index core producer prices rose 0.6% based primarily on higher vehicle prices. Over the past year, core producer prices increased at a modest 1.3%, about half of the core rate seen just one year ago.
Industrial production fell 0.6% in September compared to expectations for a 0.1% decline. Weakness was concentrated in utilities output which plunged 4.4% on the month. Manufacturing output fell just 0.3% while mining production gained 0.7%. Capacity utilization fell to 81.9% last month from 82.5% in August which helps to alleviate tight resource usage and possible inflationary pressures.
The NAHB housing market index gained a point to 31 in October in its first increase in a year. Nevertheless, the level of the index remains quite low signaling poor assessments of the housing market by major homebuilders. New home construction is expected to continue slowing until housing affordability improves.
Wednesday, October 18th
The consumer price index fell 0.5% in September based on a 7.2% drop in energy prices. Energy prices have now declined 4.5% over the past year which has dropped the yearly gain in consumer prices to 2.1%. Excluding food and energy, core consumer prices rose 0.2% on the month and are now up 2.9% on the year which is higher than the Fed's comfort zone. Even so, the Fed will hold rates steady when they meet next week. Slower economic conditions will work to ease inflationary pressures going forward.
New residential construction starts rebounded in September. Housing starts jumped 5.9% last month to a seasonally adjusted annual rate of 1.772 million units. Expectations were centered on a mild decline and a rate of 1.64 million. Even with recent gains, housing starts are 21.8% lower than their peak reached in January.
The MBA mortgage applications index fell 2.2% to 585.8% for the week that ended October 13. Rates moved higher last week resulting in a 5.3% drop in refinancing applications. Purchase apps edged 0.4% higher on the week. Mortgage demand appears to be leveling off as mortgage rates stabilize in the mid-6% range.
Thursday, October 19th
Mortgage rates were little changed this week ahead of the FOMC meeting next week where the Fed is largely expected to hold rates steady. The policy statement following the meeting could help to clarify the economic and interest rate outlook. 30-year fixed rate mortgages averaged 6.36% this week compared to 6.37% last week according to Freddie Mac’s mortgage market survey.
Jobless claims fell 10k to 299k for the week that ended October 14. The unexpected and sizable drop in the number applying for unemployment insurance suggests resiliency in labor market conditions. The level of claims suggests payroll gains for October could be stronger than in recent months.
Friday, October 20th
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 12002.37 11960.51 +41.86 or +0.35%
NASDAQ 2342.30 2357.29 -14.99 or -0.64%
WEEK IN ADVANCE
A rate cut is essentially off the table with the Fed expected to sit on its hands at least through the first quarter of 2007 based on recent economic data that shows underlying economic strength and still elevated levels of core inflation. Data watch continues though with new and existing home sales highlighting on the economic calendar in the coming week. Also, we will get the first print on third quarter economic growth with the advance estimate of GDP data Friday.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.75% 6.75%
Fed Discount 6.25% 5.75% 4.75%
Fed Funds 5.25% 4.77% 3.76%
11th District COF 4.277% 3.604% 2.870%
10-Year Note 4.78% 5.02% 4.46%
30-Year Treasury Bond 4.90% 5.10% 4.65%
30-Yr Fixed (FHLMC) 6.36% 6.53% 6.10%
15-Yr Fixed (FHLMC) 6.06% 6.17% 5.65%
1-Yr Adj (FHLMC) 5.57% 5.63% 4.89%
6-Mo Libor (FNMA) 5.3704% 5.1196% 5.2154%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Thursday, October 19, 2006
Real Estate Market Downturn Nearing End
No one knows for sure, of course. But Irvine, Calif., real estate consultant John Burns suggests the turnaround may come sooner rather than later, at least in some high-profile markets. In fact, the economist says some places could see a reversal of fortune by next year.
Burns sees a stable housing market as three-legged stool, he told his clients in a recent newsletter. One leg is demand, represented by the number of would-be buyers. Another is supply, or the number of active sellers. And the third is investment, which he defines as a mixture of affordability, consumer confidence and speculative activity.
Currently, he pointed out, the demand leg is the only one of the three that is on solid footing. Indeed, the underlying demographics "support healthy demand for many years to come," he wrote, explaining there is a real need for some two million new units alone each and every year for the next ten.
"Demand is our primary hope for avoiding a crash landing," Burns says.
While some naysayers argue that housing prices are free-falling towards a crash landing, Burns isn't in that camp. Prices may be falling, he points out, but at least most consumers aren't worried about losing their jobs. Indeed, the number of new jobs continues to rise every month, albeit at a slower pace, and the unemployment rate remains exceptionally low.
The supply leg, meanwhile, will probably take a while to correct itself, but certainly within the next 12 to 48 months, depending on the market, according to Burns.
Currently, the number of unsold homes under construction is at an all-time high, as is the number of unsold existing homes. And Burns says the situation will need time to correct itself over time -- less time in submarkets close to job centers and more in outlying areas where most people commute long distances.
The increase in unsold listings was this cycle's early warning indicator, the economist points out. And a decline will be the sign that the market is rebalancing itself. "The supply problem will be resolved when the market returns to 2.5 months of supply in the resale market, and only a few standing units of inventory in a typical new home subdivision," he says.
As Burns sees it, the correction "could take years" in outlying areas. In built-out markets such as San Diego, over-supply is "likely to correct earlier" than in sprawling markets like Phoenix. But economic growth will "play a huge role as well," and help many markets recover sooner.
Burns also notes that home builders have already corrected for their share of the over-supply. During the boom years, builders overbuilt the market on a national basis by about 15 percent, he wrote. Last year's construction pace was at about 2.3 million units, but the rate has already slowed to 1.8 million, which is less than the 1.9 million to 2.1 million units a year that are needed to satisfy the demographics of the housing market.
The housing economist told his clients to worry more about the location and price of the oversupply than the overall number itself. The Nation's Capital is one example where location and price matter more. In the Washington metro area, a healthy ratio of 2.2 jobs were created for every new housing start. Unfortunately, most of the development is occurring outside the market's main employment centers.
And D.C. is not alone. In Phoenix, the largest number of resale houses on the market are on the outskirts of town, which is exactly where home builders are most active. And construction in Tampa, Orlando and Sacramento, to name just a few places, is most active far away from where the jobs are.
According to Burns, the investment leg of the stool is the wild card. Demand is strong, just not at current prices, he says. "Affordability is an issue in the major markets, but not everywhere."
On the other hand, consumer confidence is strong. In fact, it hasn't been an issue, at least not like it has been in previous down cycles, largely because most folks are secure in their jobs, the housing consultant says.
But speculators remain a bugaboo. At the height of the market, Burns says, "an unprecedented level of investors created 40 percent more sales activity" than should normally have been created. Now, we have to wait and see how they will react. Will they hold until the market turns more favorable, or will they panic and sell at any price just to be over and done with it?
As in politics, all housing markets are local. But if you are watching the national numbers, Burns concludes that 5.6 million total sales -- both new and used -- is indicative of a normal level of demand.
In June 2005, the annual rate reached 8.5 million. But it has already slowed to 7.3 million. Unfortunately, he believes the market will need to over-correct to below the 5.6 million benchmark because of affordability problems and the huge number of investors before it can right itself and begin heading north again. Written by Lew Sichelman
Monday, October 16, 2006
Economists Beginning to Challenge Media's Negative Drumbeat on Housing
Is it a housing bust or a media-driven panic? Mike Moran, chief economist for Wall Street's Daiwa Securities America, Inc., says he's surprised that virtually nobody has challenged the constant drumbeat of negative headlines and TV news warnings of imminent crashes and home price meltdowns.
"It's really been way out of line with reality," says Moran, whose firm specializes in the bond market. When a 1.7 percent decline in the median home price nationwide sparks headlines about the "housing bust," that is "just pure sensationalism about what is going on here," he said in an interview.
The housing market "is going through a correction that's badly needed" after five years of record sales and price appreciation. "The key issue is whether it is orderly or disorderly" -- and it's clearly the former. Yet the financial press and TV news programs are "portraying it as a catastrophe."
Moran got indirect support for that view from other economists, including the Mortgage Bankers Association of America's chief economist, Doug Duncan, who said "the rhetoric is just way overwrought" -- the sky is not falling in the real estate and mortgage sectors.
To the contrary, even the Federal Reserve's vice chairman believes the current correction will not be dramatic or even that long-lived, and that the housing slowdown will not have dire side effects on other parts of the economy.
In a speech that went virtually unreported by major media, vice chairman Donald L. Kohn told New York analysts that the "rebalancing" of prices to better fit current demand that is underway in many metropolitan markets is a normal, cyclical event -- not an incipient disaster. In fact, it may even be a healthy and necessary part of the cycle: "The reported declines in new home prices in a number of areas should help facilitate the rebalancing of supply and demand" -- ie, lower prices should help gradually expand the number of serious buyers looking for houses.
Thanks to strong underlying demographic factors -- new household formations and population growth -- the current down phase may be relatively short-lived, Kohn suggested. New housing "starts may be closer to their (low point) than to their peak." If one takes mid-summer 2005 as the peak of the multi-year housing boom, Kohn appeared to suggest that the low point of the cycle -- and the beginning of the eventual turnaround -- could be just over the horizon.
The latest pending home sale index from the National Association of Realtors, which showed a surprising 4.3 percent jump in the number of sales in the contract stage, but not yet closed, supports that conclusion.
Kohn also noted that other economic conditions today do not point to a deep housing price recession or bust. For example, long-term mortgage interest rates are about a point above their historic lows, the Fed itself has stopped raising short-term rates, gas prices are falling, and the unemployment rate just dropped to 4.6 percent.
The current "situation stands in sharp contrast to some past downturns in the housing market" -- in the early 1980s especially -- "that followed actions b the Federal Reserve to tighten credit conditions significantly."
"Continuing growth in real incomes should underpin the demand for housing," said Kohn, "and as home prices stop rising, help to erode affordability constraints."
How come you're reading about the Fed vice chairman's moderately upbeat speech in Realty Times rather than watching it on the evening news or reading about it in your newspaper?
Good question.
Written by Kenneth R. Harney
Economic Highlights for the Week Ending October 13, 2006
Monday, October 9th
COLUMBUS DAYBanking Holiday
Tuesday, October 10th
Rate cut expectations moved lower after the release of the employment report. Upward revisions to job gains and a decrease in the unemployment rate overshadowed what was a weak looking headline figure. Yesterday, fed funds futures traders were pricing in just a 20% chance the Fed would ease rates at the end of January, which means there is a strong likelihood the Fed will remain on hold through this year and in January, pushing a potential rate cut to second quarter or later.
Wednesday, October 11th
September 20 FOMC meeting minutes indicated that the Fed remained quite concerned about inflation but believed that slower economic conditions and previous rate hikes would work to keep it contained, lessening the risk of holding the target for the fed funds rate steady at 5.25%. Most of the economic slowing was attributed cooling in the housing market which is expected to abate sometime next year.
The MBA mortgage applications index fell 5.5% to 599.1% for the week that ended October 6. Purchase applications decreased 5.3% on the week while refinancing volume fell 5.8%. Declines this week follow sizable gains last week. Mortgage application volumes are leveling off as mortgage rates stabilize.
Thursday, October 12th
Jobless claims rose 4k to 308k for the week that ended October 7. The low level of claims suggests a subdued pace of layoffs and a relatively tight labor market. Job gains however should remain modest.
The international trade deficit increased $1.9 billion in August to a record $69.9 billion, compared to expectations for a small decline. The deficit widened on high oil prices and strong domestic demand for foreign made goods and services. After remaining fairly stable the first half of the year the trade gap has deteriorated sharply in the last two months due to expensive oil imports. Recent oil price declines should stem some of the deterioration in the trade deficit in coming months.
The Fed's beige book showed that the economy continued to grow in late August and September despite widespread cooling in the housing market. The latest survey of the Fed's twelve banking districts was compiled in preparation for the October 24-25 FOMC meeting. Economic expansion in most areas was moderate or mixed but housing slowed in all areas resulting in slower sales, rising inventories and softer prices. Pricing pressures did not accelerate. The survey is consistent with near potential economic growth, contained inflation and steady monetary policy. The Fed is expected to remain on hold through the remainder of this year and possibly through the first half of next year.
Lenders raised mortgage rates this week on higher bond yields generated by the minutes of the last FOMC meeting where policy makers expressed concern over inflation. 30-year fixed rate mortgages averaged 6.37% this week compared to 6.30% last week according to Freddie Mac's mortgage market survey.
Friday, October 13th
Retail sales fell 0.4% in September less than an expected gain of 0.2%. Weakness stemmed from a 9.3% plunge in gasoline sales related to lower prices at the pump. Excluding gasoline, retail sales rose 0.6% reflecting generally healthy spending in most other categories. Apart from the volatility in gasoline sales, consumer spending remains strong and will contribute positively to third quarter GDP growth.
Import prices plummeted 2.1% in September based on a 10.3% drop in petroleum prices. Crude oil prices have retracted most of the gains seen in the last year. Over the last twelve months, imported petroleum prices are up just 2.9% compared to 30 and 40 percent gains in 2004 and 2005. Recent decline in oil prices are expected to produce more tame inflation reading next week when the CPI and PPI are released.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11960.51 11850.21 +110.30 or +0.93%
NASDAQ 2357.29 2299.99 +57.30 or +2.49%
WEEK IN ADVANCE
Financial markets may have been getting ahead of themselves in anticipation of imminent easing. Indeed, Fed speak and FOMC meeting minutes from last week quashed rate cut possibilities and instead focused on inflation. Consumer and producer price data in the coming week will clarify inflation against the backdrop of lower oil prices.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.75% 6.75%
Fed Discount 6.25% 5.75% .75%
Fed Funds 5.25% 4.76% 3.68%
11th District COF 4.277% 3.604% 2.870%
10-Year Note 4.81% 4.98% 4.45%
30-Year Treasury Bond 4.94% 5.05% 4.48%
30-Yr Fixed (FHLMC) 6.37% 6.49% 6.03%
15-Yr Fixed (FHLMC) 6.06% 6.14% 5.62%
1-Yr Adj (FHLMC) 5.56% 5.61% 4.85%
6-Mo Libor (FNMA) 5.3704% 5.1196% 4.2154%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
Saturday, October 07, 2006
Economic Highlights for the Week Ending October 6, 2006
Monday, October 2nd
Financial markets are not expecting any adjustments, either up or down, in monetary policy for the remainder of the year. Fed funds futures traders fully expect the Fed to remain on hold through this year. Currently, traders are pricing in about a 25% chance the Fed could lower rates at the FOMC meeting at the end of January 2007 but time and the data will tell.
The ISM manufacturing index fell to 52.9% in September from a reading of 54.5% in August. The bigger than expected drop in the index shows slowing in national manufacturing conditions with employment and price declines on the month. New orders remained steady which indicates stability in the sector with solid production in coming months.
The NAR's pending home sales index rebounded in August, gaining 4.3% to 110.1 from a level of 105.6 in July. The jump in the index bodes well for existing homes sales. Home buyers are likely responding to falling mortgage rates and somewhat softer home prices. Hence, we should see existing home sales stabilize at current solid levels.
Construction spending increased 0.3% in August, better than expected. Strength was derived from a 3.4% jump non-residential expenditures while residential investment fell 1.5% on the month.
Tuesday, October 3rd
Motor vehicle sales rose 3.5% in September to an annual rate of 16.6 million units. Lower gasoline prices probably stimulated auto purchases. While the rebound in September will boost monthly retail sales, a flat trend in vehicle sales has created excess inventories which will detract from next quarter production levels, reducing Q4 GDP growth.
Wednesday, October 4th
The ISM non-manufacturing index tumbled 4.1 points to 52.9% in September. Last month's reading was much lower than expected but is still consistent with expansion in the service sector albeit at a much slower pace. Despite the weak headline number, index components were generally stronger with gains in new orders, order backlogs and employment suggesting a pick up in activity next month.
The MBA mortgage applications index jumped 11.9% to 633.9% for the week that ended September 29. Lower mortgage rates over the past two months brought the volume of both purchase and refi application up significantly this week. The purchase index gained 7.6% while refinancing activity soared 17.5% as borrowers converted from adjustable to fixed rate mortgages.
Thursday, October 5th
Jobless claims fell 17k to 302k for the week that ended September 30. The drop in claims is unexpected and inconsistent with other data that suggests slower job growth. Expectations are for the level of claims to climb higher on housing related job losses.
Mortgage rates were lower but little changed this week on expectations the Fed will remain on hold for the remainder of this year. 30-year fixed rate mortgages averaged 6.30% this week compared to 6.31% last week according to Freddie Mac's mortgage market survey. Economists at Freddie Mac note that lower rates recently are providing an opportunity for homeowners to refinance their ARMs before they reset to higher rates in the future.
Friday, October 6th
Payroll employment increased just 51k in September much less than an expected gain of 120k. However, the prior two months were upwardly revised for a net increase of 62k jobs. September weakness was offset by higher job gains in the preceding months to keep payrolls in line with the current trend of modest growth. Average hourly earnings increased 0.2% for a year over year gain of 4.0% while the unemployment rate fell to 4.6% of the workforce.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11850.21 11679.07 +171.14 or +1.46%
NASDAQ 2299.99 2258.43 +41.56 or +1.84%
WEEK IN ADVANCE
Mixed employment data today did little to set a clear course for the economy and interest rates. Data watch will intensify as financial markets decipher the outlook. In the coming week, retail sales, due out on Friday, highlight. Also, the Fed minutes from September will be of interest as will the beige book compiled in preparation for the October 24 FOMC meeting.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.75% 6.75%
Fed Discount 6.25% 5.75% 4.75%
Fed Funds 5.25% 4.88% 3.85%
11th District COF 4.277% 3.604% 2.870%
10-Year Note 4.69% 4.89% 4.37%
30-Year Treasury Bond 4.84% 4.94% 4.56%
30-Yr Fixed (FHLMC) 6.30% 6.43% 5.98%
15-Yr Fixed (FHLMC) 5.98% 6.10% 5.54%
1-Yr Adj (FHLMC) 5.46% 5.57% 4.77%
6-Mo Libor (FNMA) 5.3704% 5.1196% 4.2154%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
