Mortgage Market Update - 12/3/2010

With the holidays fast approaching, one would have thought that the economic reports delivered this week were an early present to the nation. Many of the reports came in stronger than expected and the feeling of recovery was all throughout the air. Then came the jobs report on Friday...
Today it was reported that the national unemployment rate increased from 9.6% up to 9.8%. Experts were virtually unanimous in the expectation that unemployment would remain the same or decline slightly. (So much for being an expert) - The initial reaction by the stock market was less than expected. Typically when unemployment increases, the stock market panics and will sell off in droves causing the indexes to drop dramatically. As of the writing of this report, the stock market is flat which means the significant gains seen this week should remain and that the unemployment report is not being considered a major concern, at least for stock investors.
Despite unemployment increasing, there was other news this week that has given us reason to cheer that the recovery is truly taking hold. Is it possible that we can sustain a recovery without housing playing a major role? Normally my answer would be "no", however, the stock market, retail sales and manufacturing seem to be ignoring housing based upon the reports released this week.
Consumer Confidence continues to increase indicating that more and more Americans are feeling better about the future of the economy. Although jobs continue to remain on many people minds, overall the public is beginning to believe that the economy is on the right path to recovery. Although we all know we are not out of the woods yet, the feeling that we are finally headed in the right direction does seem to exist.
Manufacturing once again showed significant growth. Production is increasing at a healthy rate and movement from production to shipping is also showing signs of growth. Simply put, more goods are being moved to the markets and consumers are purchasing them.
Sales reports from Black Friday show that consumers spent on average 6.2% more this year than last year. Although everyone is looking for a bargain, there certainly was no lack of people hitting the stores on Friday and the internet on Cyber Monday driving sales to the highest level we have seen in years.
Purchase applications for the past week rose 1.1% which is a positive sign that people are taking advantage of low house prices despite the fact that mortgage rates have been rising. The report of increased unemployment does threaten to derail purchases if people become even more fearful of losing their job based upon today's report.
The Case-Shiller Home Value Index indicated that home prices dropped nationally for the 3rd straight month. The drop of .7% from September to October was considerably more than expected. The continued decline of housing prices may also force more potential homebuyers to the sidelines waiting to see just how low prices will go.
What should be considered good news is that the National Association of Realtors reported that Pending Home Sales jumped 10.4%. As much as I am optimistic about this significant increase, I am tempering my enthusiasm only because I don't know if pending homes sales jumped because of more transaction, or did it jump because closing real estate transactions is taking longer than it has ever taken before creating a backlog?
Next week stands to be a quiet week regarding economic reports:
• Wednesday December 8th - MBA Mortgage Applications, 10 Year Note Auction
• Thursday December 9th - First Time Jobless Claims
• Friday December 10th - Consumer Sentiment

Your Mortgage Consultant,

JJ Mack
916-517-1800