Mortgage Market Update - 2/25/2011

As promised, this week was loaded with plenty of headlines regarding the strength and weaknesses of the economy. As usual, the reports released showed that some parts of the economy are improving while others showed continued weakness in the recovery.
Unless you have been sleeping for a week, you know that the price of oil is the hottest topic you can find in the news. Due to the political unrest in Libya, oil prices have been rising and that has been translating into rapid increases in prices at the gas pump. Increasing gas prices run this risk of hurting the economic recovery if they get to a point that the price at the pump draws significant household money from other domestic spending.
Consumer Confidence (the measurement of consumers feeling about current economic conditions) and Consumer Sentiment (the measure of how consumers are spending money) are both at the highest point we have seen in 3 years.
GDP continues to show signs of economic growth although the country is not growing as fast as initially expected. None the less, there is positive growth and that will always be gladly accepted.
It appears that borrowers are finally realizing that mortgage rates are not going back down to 4%. The Mortgage Bankers Association reported healthy increases in purchase and refinance applications for the prior week. Purchase applications increased 5.1% while refinances increased 17.8%. Mortgage rates this week declined by ¼% so I would expect that next week we should continue to see another increase in applications.
Existing Home Sales rose 2.7% for the prior month which was less than expected, however positive none the less. The concerning part is that 32% of all transactions are cash. 37% of the transactions are for distressed properties.
On the not so good side of housing, we had a number of reports which continue to demonstrate the big challenges ahead for a real housing recovery. New Home Sales dropped 12.6% which was more than predicted. The Median Home Price for properties sold last month also dropped 5.9% to the lowest point in 9 year. The Case-Shiller House Value Index also indicated that home prices are dropping and that currently they are averaging about 1.2% below the same time last year.
An important note to the Case-Shiller House Value Index is that is does not take into account cash purchases. The reality of the home value price situation is that if you were to include the cash transactions, the house price decline would actually be more than reported.
First time jobless claims dropped back below 400,000 after we had seen a recent up-tick in first time jobless claims. Some people speculate that this drop could be a sign of good things to come however I am not ready to make that determination based upon only a single week's employment report.
Reports due out next week are:
• Monday February 28th - Pending Home Sales
• Tuesday March 1st - ISM Manufacturing Index and Construction Spending
• Wednesday March 2nd - MBA Mortgage Applications and ADP Employment Report
• Thursday March 3rd - First Time Jobless Claims
• Friday March 4th - Employment Situation (National Unemployment figures are released)

Your Mortgage Consultant,

JJ Mack
916-517-1800