The members of the Federal Open Market Committee, for the first time in a long time, have come out publicly in disagreement on what the next step for helping the ailing economy should be. The FOMC Meeting minutes clearly show that there is disagreement on how the next phase of government stimulus / quantitative easing should be implemented. Some members feel that more data needs to be accumulated before action is taken while others are saying that action needs to be taken sooner than later. Regardless it appears highly likely that some type of action will be taken by the November elections. (Can't imagine why that might occur, can you?)
Mortgage rates are hitting record lows and with the prospect of more government stimulus, the expectation is that rates will fall even further. As of last week the national average for the 30 year fixed rate was 4.21%. Mortgage applications for last week saw a surprising decline of 8.5% fir purchase applications. No real explanation has been offered as to the cause of the slowdown however some people speculate that the barrage of news regarding the suspensions of foreclosures may have pushed buyers to the sidelines. Additionally, some transactions that were started were also halted due to the foreclosure filing mess. Refinance applications are going strong as they represent 83% of all mortgage applications for the past week.
Economic reports outside of housing continue to show no real direction for the economy. The positive news reported this week was that inflation on the wholesale and retail levels are not a concern at all. On the flip side however is that talk is starting to surface that the level of inflation is becoming almost to low which can be an indication that we may enter a deflationary economy.
On the surface some may say, "Hey if prices are going to drop, that is great news for me". However what happens in a deflationary economy is that if consumers recognize that prices are falling, then they will start to keep their money in their wallets and wait for lower prices. If people start to hold off on purchases, then the whole recession cycle starts all over again.
Before anyone reading this begins to panic, it is important for you to know that last month retail sales came in higher than expected. So at least for right now, consumers are spending money and that concerns about deflation, at least on the consumer level does not exist.
Employment still continues to be a drag on the economy. First time jobless claims came in higher than expected and actually rose by 13,000 from the previous week. This is the first increase in jobless claims in a month. Continuing jobless claims continue to drop and some government officials are trying to leverage this news for political gain. The truth of the matter is that the only reason why continuing jobless claims are declining is because more and more people are dropping off the unemployment rolls as their benefits run out and that no more extensions are available.
One of the ironic reports this week is Consumer Sentiment. This report came in worse than expected and showed that people are becoming more concerned about the future of the economy. The irony is in that Retail Sales continue to improve which is not what one would expect to occur if people are not optimistic.
Relevant economic news on tap for next week:
• Monday July 18th - Industrial Production & Housing Market Index
• Tuesday July 19th - Housing Starts
• Wednesday October 20th - MBA Mortgage Applications
• Thursday October 21st - First Time Weekly Jobless Claims
Your Mortgage Consultant,
JJ Mack
916-517-1800
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