Mortgage Market Update - 5/6/2011

"Houston, we MIGHT have an economic problem"!
James Lovell knew they had a big problem when there was an explosion on Apollo 13. The United States economy is not quite sure if we have a problem or not, hence the reason I changed Lovell's famous quote slightly.
Some economic indicators are pointing to the fact that the recovery is slowing. However un-employment is not one of them. This morning it was reported that job growth continues to recover nicely in that April the economy added 244,000 jobs. This piggybacks on the growth numbers we experienced of 68,000, 194,000 and 216,000 in January, February and March respectively.
Do not be alarmed that the national unemployment rate increased from 8.8% to 9%. This is related to the number of people filing unemployment claims. The most important number regarding unemployment is always the net number of jobs being added to the economy. As much as the economy added 244,000 jobs in the last month, we have been seeing a continuing trend of rising first time jobless claims which can ultimately derail economic growth if the trend continues.
Outside of the improving employment pciture, the economic data is showing signs of a slowing recovery. Corporate profit reports have been mixed throughout the last two weeks and many other reports are showing mixed signals. This week the ISM Manufacturing Index for April showed that manufacturing has slowed. Although back orders are still significant, new orders are beginning to slow down.
Oil prices have dropped from their recent high's however consumers have yet to see any drop at the pumps. Unfortunately it can often take weeks before gas prices follow the drop in oil prices. (Isn't it ironic that gas prices go up fast but they always drop much slower?)
Part of the economic slowdown is being attributed to the idea that consumers are finally beginning to change their spending habits because of higher gas prices. I do know that for the last two weeks I have written about the resolve of the American consumer and how they are still moving on with their lives despite rising prices at the pump. At this point it seems that consumers are starting to watch what they are spending and changing their travel habits to reduce the amount of gas they need. This is evidenced by the fact that this past week gasoline reserves increased by 2% which is one of the major reasons gas prices declined significantly this week.
Mortgage applications for the prior week remained flat despite the fact that mortgage rates have been steadily declining for the last couple of weeks. The real estate market continues to struggle and there is little expectation that the housing recovery will really take hold in the next few months. Housing prices in some areas have actually declined to lowest point since the recession began which lends credence to the idea that the housing market is in a double dip.
Reports due out next week are:
• Wednesday May 11th - MBA Mortgage Applications
• Thursday May 12th - First Time Jobless Claims, Producer Price Index and Retail Sales
• Friday May 13th - Consumer Price Index and Consumer Sentiment

Your Mortgage Consultant,

JJ Mack
916-517-1800