Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ June 21 through June 25 ~ The Dow Jones Industrial Average slid gradually from a Monday opening of 10450.64 to a Friday close of 10143.81. Throughout the week the market index seemed unable to hold on to intraday gains, ending lower each day. The 10-year Treasury note fell steadily as well, beginning the week at 3.225% and ending it at 3.110%. The Treasury note and the DJIA were both falling in the face of continuing concerns about the strength of the economy. Particularly difficult for the markets to shake were the unsettling indicators reported from the real estate sector.

FOCUS ~ Real estate sales have apparently continued to decline at a pace unanticipated by most market analysts. Analysts assumed that sales volumes, along with mortgage application volumes, would fall after the federal homebuyer tax credits expired. But this week there were reports of a 2.2% decline for existing home sales and a sizeable drop of 32.7% for new home sales in May.

But let’s consider the context within which these statistics appear. Remember, existing and especially new home sales figures are volatile and they are often revised in the weeks after they are published. Also, let’s look at an index that suggests how many home sales should soon be closing.

The Pending Home Sales Index, compiled by the National Association of RealtorsÒ, tells us how many contracts for the purchase of homes were signed in a given month. In April, the number of contracts rose by 6%, the third monthly rise in a row. That would suggest stronger, not weaker, volumes of sales closing in May and June.

Meanwhile, the Mortgage Bankers Association® Index of Mortgage Applications has been suggesting that the decline in purchase money applications (that followed the expiration of the tax credit programs) was ending. This should mean that sales are once again picking up.

The existing home sales data include completed sales only, unlike the Pending Home Sales Index. If these sales were affirming the trends in the Pending Home Sales Index and the Mortgage Applications Index, they would be rising. Why the disparity between these sets of data? Perhaps the main reason is that it is taking longer than expected to close the sales brought on by the end of the tax credit programs.

This may not completely explain the huge drop in new home sales, but, as we mentioned earlier, new home sales data are particularly volatile. We need another month of data to make more sense of the 32.7% sales drop and resolve the differences between these real estate indicators.

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ June 14 through June 18 ~ Though the week had its share of weak indicators, the Dow Jones Industrial Average managed to rise fairly steadily from its beginning level of 9816.49 to the week-ending 10450.64. The 10-year Treasury note, reflecting apparently greater investor confidence in the world economy, rose about 10 basis points over the week and, even more tellingly, the price of a barrel of oil climbed from $71.69 to $77.35. The price of oil usually rises when investors expect the economy to improve and demand for fuel to rise. The downside of these signs of strength was a 10% decline in new housing construction in May, along with a drop in permits for future construction. This probably was behind the decline in the June National Association of Homebuilders survey of builder optimism, which fell from May’s 22 to 17.

FOCUS ~ The Mortgage Bankers Association (MBA) Mortgage Applications Index, compiled by means of a weekly survey of about 40% of the nation’s mortgage lenders, suggests an easing or ending of the decline in applications that followed the effective end (April 30) of the $8,000 and $6,500 homeowner tax credit program. Purchase money mortgage applications had fallen by more than 35% from the end of April to the present, with a sizable 27.1% decline in the week ending May 14.

After the major decline, the purchase money index continued to fall by 3% to nearly 6% for the following four weeks. The index level reached its lowest point in the recession and industry analysts worried that the real estate recovery might fall into a second major slowdown. In the week ending June 11, however, the index finally turned up, rising 7.3%.

One week does not create a trend, of course, but it does, in this case, end a downward slide. Many analysts have wondered if record low interest rates would attract more buyers. This seems to be the case because the savings a qualified homebuyer experiences based on lower interest rates are significant.

Other homeowners, meantime, are making their current homes more affordable by refinancing, as is evidenced by a recent 21.1% increase in the number of applications for refinancing loans. And the gains in refinancing applications and purchase money applications are causing many analysts to think positively about the real estate market.

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ June 7 through June 11 ~ The Dow Jones Industrial Average (DJIA) began the week at 9931.97, having declined in the face of the prior week’s disappointing employment report and on-going concerns about debt issues in several of the world’s nations. By the end of the week, though, the DJIA had risen 2.8%, to 10211.07, in the face of very little news that would support its climb. A plausible explanation for this is that the DJIA has a tendency to rise when the general belief is that the economic recovery is continuing in spite of many concerns.

The price of gold gave contrary signals, also; it began the week at a very high 1239.30 and, despite the ups and downs of the stock market indices, the price of oil and the exchange rate of the euro, gold remained above 1220 for the remainder of the week. In other words, even as a rising DJIA signaled a bit more willingness to invest where the risk is a bit higher than it is in gold, the strength of gold still suggested that a large number of investors were unwilling to move their wealth out of this safest of safe investment havens.

FOCUS ~ Retail Sales (where the economy moves from Wall Street to Main Street) for May showed a marked decline of 1.2%.

Consumer purchases make up about two-thirds of the nation’s Gross Domestic Product. Without strong retail sales, we cannot have a strong economy. Indeed, analysts frequently assert that we need better employment figures to have better retail sales data. And to have greater real estate sales volume we need both strong employment growth and retail sales figures.

These retail sales figures, we should remind ourselves, represent only one month. We need more data before we try to reach definitive conclusions. March and April figures, for a slew of technical reasons, may have been higher than they should have been, and the current numbers turn out to be 7% higher than their year-ago levels.

Still, the report raises more unanswered questions about the strength of the recovery, precisely the kind of questions that made this week’s numbers jump around so much.

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ May 31 through June 4 Monday was, of course, a holiday, so the market week began on Tuesday with the Dow Jones Industrial Average (DJIA) registering 10136.63 at the opening. Tuesday’s close brought a 1.1% loss to the DJIA. By Thursday’s close, the DJIA had risen about 2.3%, the first back-to-back gain of the current year. On Friday, though, the stocks markets dropped in response to the weak employment report and word from Hungary that it too was facing severe debt problems. Interest rates fell on Friday’s market action, with the 10-year T-note reaching 3.197%.

FOCUS ~ The Employment Report ~ A total of 431,000 payroll jobs were added in May, and the unemployment rate fell again to its March level of 9.7%. Ostensibly, this seemed to be good news until analysts looked slightly deeper.

Only 41,000 of the new payroll jobs were created by the private economy; the remainder were temporary census jobs that will soon disappear. Job formation, in other words, was very weak. And the move back to a 9.7% rate of unemployment suggested people who had been looking for jobs simply stopped: There really wasn’t an increase among the number of them who found employment so much as there was a decrease among those actually confident enough in the recovery to seek a job.

There are sources of mild optimism to be found in the fine print of the employment report. The number of hours worked by private sector employees has risen 4.9% over the last three months. And private wages income, combined with higher hourly earnings, rose by about 0.6% in May. Further, the manufacturing sector has shown a 12.1% increase (annualized) in hours worked over the last three months.

These increases in the number of hours worked suggest that employers may need to hire more workers relatively soon. But they are not convincing market investors that the economic recovery is still on a firm, upward path. Indeed, many analysts feel that the economy could slow now as easily as it could strengthen. This helps to explain the very uncertain course the market indices have been following, as they fail to establish a seemingly sustainable trend for longer than a few days at the most.

The employment report didn’t build a convincing case for either a slowing or a speeding up of the recovery.

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ May 24 through May 28 ~ Another very active week ended with a slight gain for the Dow Jones Industrial Average. Friday’s close, though, fell to 10136.63, nearly 1.2% below the prior day’s higher close. More important, the story during this week was really about hour-to-hour changes more than about day-to-day movements. Monday began with fears about European credit problems eroding the stock market indices in the Far East. The DJIA dropped significantly when it opened, but managed to limit its losses by the close of the day. And so it went, throughout the week, with concerns about the stability of the euro dragging share prices down over the whole world, but with the American stock exchanges holding their own for the most part.

FOCUS ~ In the midst of this unusual and unpredictable activity in the stock and credit markets, luxury homes have been making a surprising comeback, according to a May 28 report in The Wall Street Journal. Sales volume has risen sharply, reaching levels not seen since 2005 in some of the nation’s luxury markets.
The Wall Street Journal cited a study by real estate consulting firm CoreLogic®, which found that sales of homes priced from $2 million to $5 million in our nation totaled 2,461 in the first quarter of this year. That’s a 32% jump from sales totals of last year’s first quarter.

Sales are very strong in some expected places. In San Francisco, 49 homes sold for $2 million or more in the first quarter, beating out 2005 first quarter sales by 2 homes. In Manhattan, there were 402 sales of homes at $2 million or more in the first quarter, compared to 311 in the first quarter of 2005. And sales have even been a bit better in the still-devastated real estate markets of Las Vegas and Miami. Other strong areas include the Hamptons in New York, and Menlo Park and Beverly Hills in California.

Historically, luxury home sales respond more to the strength in our stock markets than to lower interest rates. The year’s run-up in the stock markets very likely brought buyers into the luxury home market, but analysts are concerned that the recent drop in stock market indices may slow the luxury market rebound.

Still, the stock markets are extraordinarily difficult to predict. They may resume their upward movement; and they may not. But the fact that we have seen such a rebound at all suggests unexpected strengths in the upper end of the real estate market and, perhaps, in the real estate market as a whole. Luxury home sales figures are well worth continuing to watch closely.

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ May 17 through May 21 ~ The Dow Jones Industrial Average (DJIA) edged down from its Monday close until Friday, when it rose 1.25% above the prior day’s 3.6% decline. The official explanation for Thursday’s large decline was that investors were worried about world credit markets. Many investors are uncertain about the markets’ direction, and thus the markets are vulnerable, tending to follow negative moves in a day’s trading. The 10-year Treasury note yield edged down all week, as did the cost of an ounce of gold. Few issues gained in value this week (from shares of stock to barrels of oil) and, for the moment at least, there was a continuing trend toward lower prices.

FOCUS ~ One of the more striking sets of indicators from the week was the Mortgage Bankers Association (MBA) Mortgage Applications Index (see to the right), which is followed in each issue of this update.

The History: Since 1990, the MBA has surveyed its 3,000 members for the number of mortgage applications they receive each week, covering more than 40% of the residential mortgage market.

The index tracks applications, but does not report on the number of actual resulting originations. Not all applications necessarily become loans, especially if borrowers shop for loans by applying for several at once. Thus, though we look to this index to provide a sense of whether housing purchases may pick up, as well as to gauge refinancing activity, there is not necessarily a correlation between higher application figures and larger sales volume.

Recent Activity: The two major components of the index rarely diverge as much as they did in the week of May 14th’s reading (down 27.1%). The volume of refinancing applications is expected to rise when interest rates fall because those seeking a refinancing loan quite naturally want the lowest possible rate. The purchase money applications (for loans with which to buy a home) are far less affected by interest rates, though they are certainly not immune to their movements. But this plunge was caused largely by the fall-off in applications after the federal homebuyer tax credit programs expired.

Viewed closely, the decline is quite comparable to that of October-November 2009, when the first tax credit program was set to expire. The amount of this decline therefore shouldn’t be much of a surprise. Whether (and how soon) the real estate market can regain its most recent level of strength, though, remains to be seen.

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ May 10 through May 14 ~ The Dow Jones Industrial Average (DJIA) began the week at 10380.43. However, by the close of trading on Wednesday (May 12), the DJIA had regained all that it had lost in the prior week’s declines. By Friday’s close, though, the DJIA had lost more than 200 points as uncertainties unsettled the stock indices, and concerns about the European Union’s bailout package weighed down the financial markets. The good news, as far as our nation’s real estate markets were concerned, was lower interest rates, with the Freddie Mac average 30-year fixed rate edging down to 4.93%, the lowest reading so far in 2010, and the ten-year Treasury note falling all the way to 3.444%.

FOCUS ~ Behind the economic headlines that seem to change direction on a daily, if not an hourly, basis, several economic trends are asserting themselves. First, the manufacturing sector is gaining in health, and is very likely providing the greatest strength and promise now fueling the economic recovery. Second, the new home sector is surprising many in the market with its growing strength.

In April, the ISM (Institute of Supply Management) Manufacturing Index rose to 60.4 from the prior month’s 59.6. This took the index above 60 for the first time since 2004. The index results from an extensive survey of purchasing managers, measuring their optimism regarding present and short-term future levels of orders they expect to have to fill. Thus, any reading below 50 shows that less than half of the purchasing managers report an optimistic attitude. Above 50, on the other hand, suggests that the sector is strengthening. The current reading of 60, especially after years in the doldrums, is especially strong and very likely signals recovery.

The ISM reading was bolstered by a report that new orders for manufactured goods grew by 1.3% in March, and that manufacturing output rose by 1% according to the April Industrial Production report.

Construction spending, meantime, rose 0.2% above March’s level in April. Significantly, spending on building new single-family residences climbed 1.6% month-to-month, and 17.2% from April 2009 to April 2010. At the same time, April retail sales data showed sales soaring at building supply stores. And the latest NAHB (National Association of Home Builders) Market Index climbed 15.8% in May from 19 to 22. That’s 37.5% above the May 2009 figure. This index, based on a survey of construction firms, suggests that builder confidence is rising significantly.

Today’s low interest rates and improvement to both the manufacturing and new home sectors are important elements leading to the current opinion by many that our economy has edged into recovery.

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ May 3 through May 7, 2010 ~ It was an extraordinarily erratic week. Concerns about the debt crisis in the European Union had a powerful impact on the markets, with stock markets (including American markets) falling, interest rate yields in America plunging, the price of oil declining, gold managing “flight-to-quality” gains, and the euro falling against the dollar. Also extraordinary was Thursday afternoon’s temporary plunge of more than 1,000 points on the Dow Jones Industrial Average, which may have been caused by automatic selling programs and problems in other stock market technology. The decline continued on Friday, and a good employment report for April was unable to curtail the stock markets’ slide. The employment report, though, remains significant and is worth a closer look.

FOCUS ~ Not only did the American economy add 290,000 new payroll jobs in April, revisions to the number of jobs added in February and March showed a further growth of 121,000. And there is little to detract from the economy’s achievement. The number of jobs wasn’t inflated by the hiring of temporary government census workers. Nearly all of the job growth in April resulted from private-sector hiring.

Professional and business service occupations accounted for about 80,000 new jobs; manufacturing was responsible for 44,000; there were even 14,000 new jobs for construction workers.

Why, then, did the unemployment rate climb from 9.7% to 9.9%?
The new payroll data is gathered through telephone surveys of American businesses. But the unemployment rate is tallied from an entirely different survey in which households are called and people are asked how many members of the household are working, how many are not working but are looking for work, and how many have given up looking for work (often temporarily). Those who are unemployed but not looking for work are not considered part of the civilian labor force and are not included in the computation of the unemployment rate.

Notice, though, that the number of Americans looking for work begins to grow as people regain confidence that there may be jobs available to them. Thus, 805,000 potential workers began again to look for a job in April, obviously far more than the number of available new jobs. The bad news, therefore, is that the economy still hasn’t recovered enough to provide all the jobs our workers need. Far from it. But the good news is that the job market seems finally to have entered a recovery. Thus, the employment report for April, despite the higher unemployment rate, is very good, on balance. It confirms the view that the economic recovery is advancing.

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ April 19 through April 23, 2010 ~ The Dow Jones Industrial Average (DJIA) rose each day, usually in 0.1% increments, which took the index from 11018.66 at the beginning of Monday’s trading day to 11204.28 at the end of Friday’s. The 10-year Treasury note, meanwhile, shuffled in place, ending the week at 3.813%, only 1.2 basis points below its yield at the end of Monday. The Freddie Mac (FHLMC) average 30-year fixed-rate stayed at 5% for the week. And the real estate sector provided several examples of good news.

FOCUS ~ The Mortgage Applications Survey, assembled by the Mortgage Bankers Association (and detailed to the right), finally showed the kind of strength many analysts have been anticipating. For the week ending April 16, the overall index (including refinancing mortgage applications) climbed by 13.6%, with the applications for purchase money mortgages rising by 10%, and the refinancing index, inspired by slightly lower interest rates, increasing by 15.8%. However, the good news was received by many analysts with some skepticism. They attributed the higher numbers mainly to the end of the federal $8,000 and $6,500 tax credit program for homebuyers.

Based on higher mortgage application numbers, in any case, we can reasonably expect more completed sales in the near term. Meantime, the existing home sales index showed an increase of 6.8% in March over February’s sales. (Remember that this index tallies completed sales, and thus tells us very little about the future.)

Even more sales were computed in the new-home sales index, which rose by 26.9% in March over February’s sales volume. (This index, though, is based on a rather thin reading of builder sales, and is often revised in future months.) We end up with a portrait of what may possibly be an improving real estate market. But we need longer-term indicators if we are to gain a better sense of where the real estate market may be heading.

There are, thankfully, a few significant long-term indicators: According to the Wall Street Journal, finished lot prices are up about 20% nationally from the beginning of 2010, with prices rising by more than 60% in Phoenix and Southern California’s Inland Empire, for example, and by nearly 40% in Los Angeles in the same time period. Builders are buying up most of these lots and thus are betting on real estate’s future at this point. And investors are betting on the builders, with the Dow Jones U.S. Home Construction index, a measure of rising and falling builder stocks, up almost 30% this year. These are significant investments in real estate’s growth over the longer term.

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ for April 5 through April 9, 2010. The remarkable news over this week was that mortgage interest rates surged higher. This was the result, largely, of increasing confidence among investors about the economic recovery. And that growing confidence was reflected both in the higher stock market indices and in the apparent readiness among investors to put their money into riskier investments, but was not reflected in any real estate sales data other than the recent Pending Home Sales Index.
FOCUS ~ Two very important questions:

1. Wednesday, April 7th’s auction of 10-year Treasury notes inspired the highest overall demand among investors since 1999. But most interest rates are rising, including mortgage rates. Why, therefore, were the auctions of Treasury securities so successful last week? Wouldn’t investors shy away due to rising rates, which reduce the value of existing securities?

No. Buying Treasury securities bearing higher yields was (and is, today) attractive to investors seeking higher returns on their investments. Further, if an investor takes a risk and buys a Treasury security today yielding 4% and the yield for those securities falls tomorrow to 3.5%, then the Treasury securities yielding 4% gain in value in tomorrow’s market. Of course, the opposite is equally true, but investors are willing to take that risk and, in any case, their investment will provide a higher yield than it would have if they’d bought a short time ago.

2. Where is the upward “bump” in real estate sales we’ve been expecting that the approaching expiration of the $8,000 and $6,500 homebuyer tax credit should bring? Curiously, the Purchase Mortgage Applications index (see to the right) has barely budged since the last tax credit expiration brought it considerably lower. If sales are about to spike, we can often expect the applications for purchase money loans to rise well in advance of the higher completed sales figures.

At the same time, though, the National Association of Realtors Pending Home Sales Index (PHSI) jumped by 8.2% between January and February. This is a forward indicator, generally reliable, of future real estate sales closings. The mortgage applications then rise after a time to finance the purchases indicated by the PHSI. And the sales eventually show up in the existing-home sales data, which let us know what happened, not what is happening or is about to happen. Clearly, all three indicators are worth watching closely just now.