MONDAY, August 27th
Existing home sales slipped 0.2% in July to an annual rate of 5.75 million units, compared to an expected rate of 5.70 million. This was the slowest pace of home sales since November 2002. Existing home sales remain down 9.0% on the year.
Financial markets are maintaining their expectations for a Fed rate cut in September. Fed funds futures traders are fully pricing in a 25 basis point rate cut in the target fed funds rate at the next FOMC meeting. A rate cut however is not a done deal. It’s interesting to note that the effective fed funds rate has been between 4.5% and 5.0% since August 10, when the Fed increased liquidity in the banking system to help calm credit market fears. The question is, will the Fed wait for the effective rate to move higher before formalizing a cut in the target?
TUESDAY, August 28th
The consumer confidence index fell to 105 in August from 1119 in July. Consumers' ratings of both the present situation and expectations for the future dropped sharply this month. Confidence levels were impacted mainly by recent financial market turmoil and sluggish labor market conditions. Downside risks remain as consumers cope with high debt burdens, rising gas prices, tighter credit and softer home prices.
WEDNESDAY, August 29th
The MBA mortgage applications index fell 4.0% to 615.2% for the week that ended August 24. Despite turmoil in the mortgage markets, application volume remains 10.5% higher than its year ago level. Both purchase and refinance applications dropped in the last week. Mortgage application activity retreated sharply in the last two weeks which is more consistent with the downturn in housing market conditions.
When credit conditions tighten, more home buyers are rejected which leads to larger application volumes when buyers refile. This has created an upward slant to the MBA mortgage applications index. Also, the index is more heavily weighted to conventional, fixed-rate mortgages. Indeed, subprime, Alt-A and jumbo mortgage applications have dropped almost 40% in the middle two weeks of August, which has not drastically impacted the overall index.
THURSDAY, August 30th
Long term mortgage rates continued to slide this week but short term mortgage rates increased sharply as the mortgage market continues to mirror the volatility in bond market yields. 30-year fixed rate mortgages averaged 6.45% this week compared to 6.52% last week and 6.44% a year ago according to Freddie Mac's mortgage market survey. Rates on one-year adjustable rate mortgages increased about a quarter of a percent.
Jobless claims jumped 9k to 334k for the week that ended August 25. Claims are maintaining in a new higher range that is consistent with some loosening in labor market conditions. The level of claims suggests that payroll employment for August could be weak.
FRIDAY, August 31st
Housing and the mortgage industry were the main topics in speeches made by President Bush and Fed Chairman Ben Bernanke today. The Fed Chief, in remarks to an annual symposium in Jackson Hole today, said that current conditions in mortgage finance and the housing sector will be watched closely for the impact on the broader economy and that the Fed is prepared to take action if necessary. Any developments between now and the next FOMC meeting on September 18 can affect monetary policy. Shortly after the Fed Chairman’s speech, the President outlined a plan designed to help potentially hundreds of thousands of subprime borrowers avoid foreclosure. Working with the FHA, more refinancing options, lower down payments, higher loan limits and additional tax benefits were among some of the proposed administrative and legislative initiatives. The proposed changes could help many distressed homeowners keep their homes but will likely take several months to enact.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
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