Archive for the 'Weekly Market Updates' Category
Market Update
February 21st, 2007 Categories: Weekly Market Updates
Weekly Commentary
Thumbnail Sketch: In spite of the new construction figures, the housing market—and, in spite of manufacturing data and jobless claims, the overall economy—are faring reasonably well. Those, though, are rather large caveats and they need discussion.
First, why did the number of buildings under construction fall through the floor? Why now? Aren’t we reaching the bottom for the real estate correction? And aren’t builders, in the Housing Market Index survey, displaying a recovering confidence in the housing market?
The problem is that construction was moving along at a very heady pace when the real estate market slowed, leaving many builders with both a large overhang of new inventory and commitments to build more properties than they needed to. It is only now that we are seeing the number of newly-constructed homes on the market truly slow and the number of starts decline. This is, we believe, a relatively temporary situation…but the analysts at Moody’s Economy.com predict that the new-home market will be slower to truly recover than the existing-home market. Though builders have more control over how their inventory is sold and can institute wide-spread incentive programs, sellers of existing homes have more flexibility generally as regards when and whether they bring their homes to market.
That said, what we see here are very sobering data suggesting that the real estate recovery will prove slow and gradual—in some areas, something of a grind. Nonetheless, this does not mean that a bottom for the correction is no longer near. In many areas, it has apparently already been reached. In others, it’s on the way.
But what about the spike in jobless claims? Will weaker employment translate into weaker consumer confidence and fewer people entering the housing market?
The issue here, primarily, is weather, with the winter cold forcing more people to seek unemployment insurance. As a result, the jobless claims data isn’t so much displaying an eroding jobs market as it’s bringing more of the unemployed into the data. In other words, the jobless claims are becoming a bit more real.
Unsettling though it may be, none of this will have a great deal of effect on the market, and further, interest rates remain attractive and mortgage application levels strong.
KEY INDICATORS
Gold $661.40/ounce [down]
Crude Oil $57.43/barrel [down]
U.S. Dollar to…
Euro .7609 [down slightly]
Japanese Yen 120.06 [down]
6-mo Treasury Bill Yield 5.14%
10-yr Treasury Note Yield 4.69%
[both slightly down]
30-yr Fixed-rate Mortgage 6.29%
15-yr Fixed-rate Mortgage 6.01%
1-yr ARM 5.89% [HSH average rates: fixeds down; ARM up 2 bps]
Mortgage Bankers Association Mortgage Applications Index
week ending 2/9
Overall
639.8 (up 1.5%; down 0.2%
the week prior)
Purchase Money Loans
400.7 (down 1%; down 0.8%
the week prior)
Refinancing Loans
2031.7 (up 4.5%; up 0.2%
the week prior)
Weekly Jobless Claims 2/10
357,000 first computation – 313,000 prior week (with 2,000 upward revision)
Industrial Production Jan
Down 0.5% - capacity factory utilization down to 81.2%
NAHB Housing Market Index Feb
Up 5 points to 40
Producer Price Index (PPI) Jan
Down 0.6% - core level (with food & energy prices removed) up 0.2%
New Residential Construction Jan
Starts down 14.3% from prior month (down 37.8% from prior year) – Permits down 2.8% from prior month
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Market Update
February 8th, 2007 Categories: Weekly Market Updates
Weekly Commentary
Thumbnail Sketch: The Fed, while holding the fed funds rate steady for the fifth meeting in a row (the FOMC, which sets the target rate, meets every six weeks), nonetheless noted that the housing market was at or near the bottom of its correction. This observer, while inclined to agree, finds a crucial caveat in today’s economic gumbo. In three words: loans going bad.
As the National Association of Realtors® reported, “Home owners with subprime loans are missing payments more often than any time in the last 10 years, according to a report by investment bank Friedman Billings Ramsey & Co. The default rate on subprime loans that have been packaged into bonds to be sold to investors rose to 10.09 percent in November, up from 6.62 percent a year earlier. It’s the highest default rate in a decade, exceeding the 10.05 percent level reached in November 2001 at the end of the last U.S. economic recession, the report says.”
We’re justified in wondering why this is so, given that demand for real estate remains high. Wouldn’t buyers have found relatively fail-safe ways of financing their purchases? The answer, clearly, is no.
“Defaults are rising as rates on many adjustable-rate mortgages reset and personal savings decline. The savings rate last year fell to negative 1 percent, the lowest since 1933, during the Great Depression, Commerce Department data show.”
As horrendous as all of this appears, it is not going to kill the real estate market any “deader” than it already is. It represents one group of homeowners, not all of them. But it will keep the market from rebounding briskly as the correction bottoms, and likely keep sales and appreciation slow for quite some time.
KEY INDICATORS
Gold $657.70/ounce [up]
Crude Oil $59.28/barrel [up]
U.S. Dollar to…
Euro .7714 [up a hair]
Japanese Yen 120.43 [down]
6-mo Treasury Bill Yield 5.15%
10-yr Treasury Note Yield 4.80%
[both nearly unchanged]]
30-yr Fixed-rate Mortgage 6.37%
15-yr Fixed-rate Mortgage 6.15%
1-yr ARM 5.95% [HSH average rates: all down slightly]
Mortgage Bankers Association Mortgage Applications Index
week ending 1/26
Overall
631.1 (up 3.2%; down 8.4%
the week prior)
Purchase Money Loans
408.0 (up 1.3%; down 8.4%
the week prior)
Refinancing Loans
1940.2 (up 4.9%; down 9.6%
the week prior)
Weekly Jobless Claims 1/27
307,000 first computation – 327,000 prior week (with 2,000 upward revision)
Employment Cost Index fourth quarter 2006
Up 0.8%
Gross Domestic Product fourth quarter 2006
Up 3.5% - up from 2% in third quarter 2006
Construction Spending Dec
Down 0.4% - private down 0.8%, public up 0.9%
More Key Indicators
Personal Income Dec
Up 0.5% - spending up 0.7% - savings rate down to negative 1.2%
ISM Index Jan (manufacturing expectations)
Down to 49.3 from prior month’s 51.4 – anything below 50 represents a slowing
ISM Non-mfg Index Jan (service sector)
Up to 59 from December’s 56.7 – still in slowing range
Employment Report Jan
111,000 new payroll jobs in January
Unemployment rate rose to 4.6%
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Happy New Year
January 3rd, 2007 Categories: Weekly Market Updates
Weekly Commentary
Thumbnail Sketch: Tuesday was a holiday in the financial markets in observance of former President Ford’s death; Monday was a holiday, New Year’s Day. Nothing much has happened for well over a week.
The number of applications for new mortgages in the prior week, however, seems to have taken a startling drop (see below left). We’d better pay a bit of attention to that.
Notice, first, that the data has not gone through the seasonal adjustment process. And remember that we’re talking about the week before Christmas—not a very heavy selling week in real estate.
Notice, second, that the number of purchase money loan applications, while down a hearty 10.6%, still registers quite high in the index. (Anything close to 400 or above is strong.)
Then, it’s important to gain perspective from the bigger picture. The overall index, at 555.8, is about even with its December 2005 level. The purchase money mortgage applications are roughly 10% below where they were a year ago. Even the refi applications, which look decimated, stand 27% higher than they stood a year ago.
There is, in other words, very little to get worked up about here. The market still isn’t going to Hades in a handbasket. The number of loan applications will almost certainly rise over the coming weeks.
Nonetheless, one matter needs to be watched. The number of refi applications, while higher than a year ago, has nonetheless taken a big hit in the past two weeks. Interest rates have indeed edged up very slightly, but certainly not enough to have much of an effect on the number of loans being applied for. What we may be seeing, instead, is a growing reluctance among consumers to pile on further debt through refinancings.
The 2007 market for mortgages may lean heavily in the direction of purchase money mortgages that people can live with in the uncertain future. That said, note that there is little reason for rates to rise significantly over the coming months, and a strong likelihood that they will actually edge down.
Confusing? Yes—but it’s the confusing time of year when we don’t have any trends in place yet.
KEY INDICATORS
Gold $642.20/ounce [+]
Crude Oil $60.85/barrel [nearly =]
U.S. Dollar to…
Euro .7532 [-]
Japanese Yen 118.83[slightly -]
6-mo Treasury Bill Yield 5.06%
10-yr Treasury Note Yield 4.68%
[fractionally higher]
30-yr Fixed-rate Mortgage 6.25%
15-yr Fixed-rate Mortgage 5.95%
1-yr ARM 5.56% [HSH average rates: fixeds fractionally higher, ARM lower]
Mortgage Bankers Association Mortgage Applications Index
Week ending 12/22
Overall
555.8 (down 14.2%; down 10.2%
the week prior)
Purchase Money Loans
390.2 (down 10.6%; down 5.9%
the week prior)
Refinancing Loans
1604.6 (down 18.5%; down
14.6% the week prior)
Weekly Jobless Claims 12/23
317,000 first computation – 316,000 prior week (with 1,000 upward revision)
New Home Sales Nov
Up 3.4% from Oct – down 15.3% from Nov 2005
Existing Home Sales Nov
Up 0.6% from Oct - down 10.7% from Nov 2005 – median selling price down 3.1% since Nov 2005
Consumer Confidence Index Dec
Up 4.7 points
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Weekly Commentary
December 6th, 2006 Categories: Weekly Market Updates
Dec. 6, 2006
Thumbnail Sketch: To objective eyes, the real estate market appears to be settling into a slow but steady groove. Some say it’s readying itself for growth late next year; some say it will stay at this plateau, with sales close to current levels, for several years to come; some remain certain that the signs of an end to the correction are illusory, and that the real estate market will continue to slow, with values falling significantly.
What do we say? A lengthy restructuring—that is, a lengthy “normal” market—is a very likely possibility, especially when you look back at what happened in the past post-booms real estate markets.
Brian Carey of Economy.com offered the following helpful assessment: “Thus far in November, purchase applications are 6% above October’s 3½-year lows, while refinance applications are still 7% above last month’s 12-month high. The purchase applications suggest a modest lift to home sales in the near term, although this is likely to be only a short-term bounce, as Moody’s Economy.com expects mortgage rates to return to the mid-6% range over the next year, thus keeping the housing market relatively subdued. Meanwhile, recent refinance activity may provide a lift to consumer spending during the holiday season through an increase in cash-out refinancing, while limiting further deterioration in mortgage credit quality, as homeowners fix their upward adjusting ARM payments.”
We are less confident in the idea that mortgage rates will resume their rise than are other observers, including Economy.com. Why? We see signs that the overall economy is slowing more than expected, and we take very seriously the potentially recessionary effects on the economy of the real estate slowdown. For several years, strong retail sales have supported the economy, and refis and home equity borrowings have supported the retail sales. Now what? We haven’t heard a good answer. We think, therefore, that real estate sales will remain slow to moderate, but the economy may slide further than expected. Time will tell, and relatively soon.
December 6, 2006
KEY INDICATORS
Gold $646.20/ounce [+]
Crude Oil $62.56/barrel [+]
U.S. Dollar to…
Euro .7505 [-]
Japanese Yen 114.86[-]
6-mo Treasury Bill Yield 5.02%
10-yr Treasury Note Yield 4.44%
30-yr Fixed-rate Mortgage 6.18%
15-yr Fixed-rate Mortgage 5.93%
1-yr ARM 5.87% [HSH average rates: all down 10+ bps]
Mortgage Bankers Association Mortgage Applications Index
Week ending 11/24
Overall
599.06 (down 3.9%; down 3.7%
the week prior)
Purchase Money Loans
406.7 (up 1.3%; down 2.8%
the week prior)
Refinancing Loans
1749.6 (down 9.6%; down 4.3%
the week prior)
Weekly Jobless Claims 11/25
357,000 first computation – 323,000 prior week (with 2,000 upward revision)
Gross Domestic Product (GDP) Third Quarter 2006 revision
Up from 1.6% to 2.2%
New Home Sales Oct
Down 3.2% (from Sept)—down 25.4% (from Oct 2005)
Oct median price up about 10% from Sept median price
Personal Income Oct
Up 0.4% - personal spending up 0.2% - savings rate improved to negative 0.6%
Construction Spending Oct
Down 1% - private construction down 1.5%, public up 0.8%
ISM Index Nov
Down to 49.5: manufacturing orders are expected to slow
Factory Orders Oct
Down 4.7%
Productivity third quarter 2006
Revised up from 0 to 0.2% growth
Unit labor costs revised down from 3.8% to 2.3% - second quarter unit labor costs revised down from growth of 5.4% to negative 2.4%
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September 13th, 2006 Categories: Weekly Market Updates
Weekly Commentary
Thumbnail Sketch: The prices of major commodities are in a retreat. Gone, it seems, are the days when we see astonishing new highs every week for an ounce of gold or barrel of crude. Why?
“The price of gold has fallen 20% from its highs – so it’s officially a bear market in gold. And commodity prices in general are now down over 10% from their highs (as measured by the CRB Index), so commodities are officially in a correction,” notes investment advisor Steve Sjuggerud.
Commentators like Stephen Roach of Morgan Stanley believe that the commodities bull market has run its course. Steve Sjuggerud, though, is not at all so sure. “We believe the commodity price boom is still underway. We believe that – even though commodity prices have risen significantly – Mom and Pop America still have not invested in commodities. And big investors (like pension funds) are just getting around to allocating money to commodities. This thing won’t be over until everyone is on board.”
Okay—then why are prices falling right now if the bull market (extended uptrend) is not over?
There is no good or obvious answer. The fact is that bull markets, especially in commodities, tend to go through fairly major corrections. One of the reasons for this, frankly, is that Wall Street is uncomfortable with hard assets; we’re talking about people who make their living analyzing stocks, in the main, and bonds. Not gold and silver and crude and raw materials. And especially—not residential real estate.
Remarkably, there is a great deal of pressure to bring commodity prices down, especially when they have risen so high. There is also pressure to look upon a downward slide as evidence that the party is over. With gold down more than $130 from its peak to $600 an ounce, though, can we really take seriously the idea that we’ve entered a bear market for gold? Where was gold in 2001? About $250 an ounce.
Look—the 390-year Treasury bill stands at 4.90% as we speak, which is precisely the current yield on a 3-month Treasury bill. The 6-month T-bill yields 5.10%. This is a volatile time for the markets—all of them—and not a good time to be declaring a major market turn in stocks, bonds or commodities. Very likely, what we are seeing is a great opportunity to buy certain commodities and to take advantage of remarkably low interest rates. Filter out the static and what remains is…opportunity.
KEY INDICATORS
Gold $600.70/ounce [-!]
Crude Oil $65.04/barrel [-]
U.S. Dollar to…
Euro .7877 [slightly +]
Japanese Yen 117.82[+]
30-yr Fixed-rate Mortgage 6.51%
15-yr Fixed-rate Mortgage 6.21%
1-yr ARM 6.09% [HSH average rates: mixed slight changes]
Mortgage Bankers Association Mortgage Applications Index
Week ending 9/1
Overall
566.3 (up 1.8%; down 0.9%
the week prior)
Purchase Money Loans
389.7 (up 3.7%; down 1.6%
the week prior
Refinancing Loans
1594.7 (down 0.9%; virtually unchanged the week prior)
Weekly Jobless Claims 9/2
310,000 first computation – 319,000 prior week (with 3,000 upward revision)
Productivity second quarter 2006
Revised from 1.1% to 1.6%
Unit labor costs revised from 4.2% to 4.9%
ISM Non-Mfg Index (service sector) August
Up 2.2 points to 57%
Consumer Credit July
Up 2.8%
Revolving credit up 3.5%
Non-revolving up 2.5%
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August 9th, 2006 Categories: Weekly Market Updates
Aug. 9, 2006
Weekly Commentary
Thumbnail Sketch: There are two developing forecasts for the near future of our economy. One of them includes the word, “recession”; the other sees real estate slowing further and other sectors of the economy taking its place as the major engines of economic expansion. Hmm.
“Suddenly—really just in the last few weeks,” Paul Krugman, economics professor and op-ed writer for The New York Times wrote a couple of days ago, “people have started talking seriously about a possible recession.”
Why? “The key point is that the forces that caused a recession five years ago never went away.” Instead, they were all but covered over by the life breathed into the economy when the real estate market took off and people started making a lot of money just by watching their homes appreciate.
There were other sources of income, of course. So long as short-term interest rates were radically low, investors from all over the world were able to make a great deal from the so-called “carry trade,” in which you borrow short-term and invest the money in higher-yielding instruments.
Indeed, the more you think about it, the more the remarkably low interest rates—orchestrated primarily by the Fed—appear to have been an income opportunity for a great many investors. But incomes from the usual sources, from wages and salaries, haven’t risen very much at all. Some have gotten rich, in other words, while others have been treading water madly.
This can’t go on, of course. Curmudgeonly commentators have been telling us for years that a penny saved is still a penny earned and a penny borrowed isn’t really income at all. These same commentators are now predicting a recession.
They may be right. If so, the Fed—which has quietly been pumping up the nation’s liquidity, making it easy to borrow, though at higher rates—will likely do what it can to make sure the housing market lands as softly as possible and continues to provide support for the overall economy.
KEY INDICATORS
Gold $657.70/ounce [slightly -]
Crude Oil $76.65/barrel [+]
U.S. Dollar to…
Euro .7791 [-]
Japanese Yen 115.08 [+]
30-yr Fixed-rate Mortgage 6.61%
15-yr Fixed-rate Mortgage 6.34%
1-yr ARM 6.08% [HSH average rates: all lower]
Mortgage Bankers Association Mortgage Applications Index
Week ending 7/28
Overall
527.6 (down 1.2%; down 1.3%
the week prior)
Purchase Money Loans
376.2 (down 3.3%; down 2.4%
the week prior
Refinancing Loans
1417.2 (up 2.3%; up 0.6%
the week prior)
Weekly Jobless Claims 7/29
315,000 first computation – 301,000 prior week (with 3,000 upward revision)
ISM Non-Mfg (Service Sector) Index July
Down 2.2 points to 54.8%
Employment Report July
113,000 new payroll jobs (lower than expected)
Unemployment rate rose to 4.8%
Consumer Credit June
Up 5.7% (annualized)
Revolving credit up 10.3%
Non-revolving up 3.2%
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