Home Sales STILL Rising!!

Who would have thought, housing is the strongest part of the economic news for the week.  As of late we have been seeing various housing reports getting better and better, and this week was no exception.

New home sales rose a very solid 7.6 percent in May which significantly exceeded analyst’s expectation.  Sales came in at a higher-than-expected annual rate of 369,000 in May, well above the forecast for 350,000 and the best rate in more than 2 years. Regionally, May's strength includes the Northeast but is concentrated in the South which by itself makes up 55 percent of all sales.

What bodes well for the coming months in housing is that the surge of buying in May brought down the home supply to 4.7 months at the current sales rate which is the lowest since 2005.

The S&P Case-Shiller Home Value Index has demonstrated that home prices are stabilizing, a lot which has to do with the fact that competition from distressed properties and sales has been declining.  Case-Shiller's seasonally adjusted composite index for 20 of the nation's largest markets surged 0.7 percent. This is an unusually large gain, last exceeded in April 2010 and before that in August 2009. April's gain is also the third in a row which is the longest streak since early 2010. The latest report also includes a sharp upward revision to March, to plus 0.7 percent from an initial gain of 0.1 percent.

GDP for the 1^st quarter of 2012 grew at the same sluggish pace as previously believed. First quarter GDP growth posted a still slow 1.9 percent annualized pace, compared to the prior estimate of 1.9 percent and the fourth quarter pace of 3.0 percent, annualized. The third estimate matched market expectations for a 1.9 percent rise.

The stock market is set to finish June with the strongest showing in quite a while.  As Europe continues to remain a drag on the U.S. economy, week after week, one way or the other they find a way to stave off disaster.  The latest band aid for the Europe is another deal to recapitalize the banks.  This news has caused bond yields in Europe to drop to more affordable levels making it easier for banks to borrow money to stabilize them financially.

This week was a fairly light week for economic data and with the July 4^th holiday next week, other than the National Employment figures being released on Friday, next week will likely be uneventful as well.

JJ Mack

Housing Market is Steadily Increasing!

Signs of life in housing are increasing slightly.  The housing market has seen a slight recovery in certain areas.  Current sales of new homes are at their highest level since the start of the recovery according to the latest Housing Market Index.  There is not a direct correlation between this number and some of the numbers the government releases in their reports however positive news in new construction is always welcome.

Housing starts were not as upbeat based upon the headlines, however when you dig into the numbers, there are additional signs of life.  The negative side of the report related to the volatile multifamily report.  We have seen time and time again radical movements in the multifamily numbers.  Single family starts rose 3.2% which follows April’s increase of 4.0%.  Single family patterns reflect more about the average consumer sentiment and focus in housing.

Existing Home Sales continue to remain flat.  Many experts attribute this pattern to the fact that the unseasonably warm winter brought many purchasers into the market much earlier than normal.  Typically there is a significant jump in activity at this time of year however it is more than likely that the early action of purchasers is what is creating the lack of demand today.

Within the existing sales report there is good news.  Home prices appear to be firming up compared to the same time last year.  Median home prices are currently 7.9% higher than they were the same time last year.

The Mortgage Bankers Association reported a 9% drop in purchase activity for the prior week.  Some of it may be attributed to the slight increase in mortgage rates.  However what is more likely is a combination of the Memorial Day Holiday combined with many school years ending in the last 2 weeks keeping potential homebuyer occupied on other areas of their lives.

As expected the Fed left interest rates unchanged.  Once again the Fed did not say much of anything about launching another round of stimulus.  You may remember that I have written in the last two weeks how investors have been gambling on the belief that the Fed would announce stronger language about launching another program to try and get the economy moving.  Well… the Fed said nothing new.  They continue to reiterate that if they need to act, they will, however they have not indicated a timeline or benchmark that would cause them to take action.  Simply put, we have no idea when and if they will act nor what it will take to get them to act on providing more stimulus.

First Time Jobless Claims continue to remain in the upper three hundred thousand level.  Last week’s claims were 387,000 where as the prior week was revised to 389,000.  Essentially this is considered “unchanged”.  What is more concerning about the unemployment picture is that within the last 30 days, there are more than 300,000 less advertisements for jobs available.  This may be a sign that employers are becoming concerned about the direction of the economy and have decided to hold back on increasing payrolls.  This is the first month that we have seen this type of drop so reading too much into this report is premature.

JJ Mack

Purchasing homes are on the rise!!

At long last it seems that homeowners and homebuyers alike are listening to the news and realizing that they need to take advantage of the record low mortgage rates.  In the last two weeks almost every day you would hear that mortgage rates have hit new lows.  Well…the people are responding.  Mortgage applications for refinancing and purchases had the largest increase in a single week than we have seen in over a year.

Purchase applications jumped 13% and refinances went up by 19%.  The purchase increase, which for me is the most telling, indicates that home buyers are realizing that the time may never be better to purchase.  When you combine the interest rates with low home prices, home affordability is once again at record levels.  The refinance jump is hard to read because a good portion of the applications now coming is for borrowers that may have refinanced within the last few years.  Because rates are so ridiculously low, they are opting to do it again.

Next week starts what I call Housing Week.  There will be 3 different reports on the housing market which will give us an indicator on the health and recovery of the market.  The reports scheduled to be released are Housing Starts, Existing Home Sales, and the FHFA House Price Index.  Although these are not all of the housing reports, these are major ones which will certainly make headlines and can have an impact on the stock market.  It is important to remember that these reports are for the prior month.  Housing can change week by week and what is the latest report may not necessarily reflect what is happening today.

Mortgage rates, although they have risen off of their record lows, they continue to remain far below where anyone ever expected them to be.  The likely hood of them remaining low is high for now because demand for government securities remains strong.  The government’s 10YR Treasury Auction this week drew more demand than was expected.  This demand demonstrates that investors are still very weary of what is happening in Europe and continue to remain on the sidelines of the U.S. stock market.  Although mortgage rates do not tie in directly to the government treasury prices, the certainly are an indicator on the movement of mortgage rates.

The rumor mill and speculation was in full swing on Thursday in the stock market.  With yet another poor unemployment report, someone started the talk that the government is more likely to act on providing more stimulus to help move the economy towards recovery.  I don’t know who started the rumor, but I do know it was NOT Fed Chairman Ben Bernake.

The irony of the speculation is that it was only based upon the First Time Jobless Claims that rose again by 6,000.  The claims for the prior week were 387,000 which is moving closer to the artificial crisis benchmark of 400,000 that we saw during the recession. 

Please keep in mind, that last week Bernake gave no indication that another round of stimulus was coming any time soon.  Yesterday nothing was said either despite the poor employment report.   However investors have taken it upon themselves to guess what the Fed may do, and that is driving the stock market.

Inflation continues to remain well under control.  The Producer Price Index declined .1% which was a larger decline than was expected by analysts.  The Consumer Price Index also dropped due to the dropping energy prices.  When you remove energy from the equation, the CPI actually increased by .2%, which is considered a moderate increase but well under control.

JJ Mack

A Mixed Economy

After living through a horrible couple of weeks in the stock market which was driven in part by the lousy jobs report that came out on June 1^st, lo and behold, we see a huge rally on Wednesday of this week.  What fueled the rally you ask …Nothing more than pure speculation.

As you know from reading this newsletter every week, the economy is not doing well.  The employment and manufacturing sectors have been deteriorating in the last couple of months.  As you listen to the news and business reports, the talk about the possibility of the country falling back into another recession is once again growing but we are nowhere near it actually happening.

On Wednesday, Federal Reserve Vice Chair Janet Yellen reiterates her own personal views that further action by the Fed for additional stimulus might be necessary to push the economy forward.  Let me be clear, Ms. Yellen said “might be necessary”.  This announcement is nothing new, it is nothing different than we have been hearing for almost a year, yet the stock market investors read into it saying that Fed Chairman Bernake will make an announcement about additional stimulus on Thursday.  The result, the stock market soars 287 points based upon a reiteration of comments that have not changed in almost a year.

Now on Thursday, Fed Chairman Ben Bernake completes his scheduled testimony before the Joint Economic Committee on the economic outlook in Washington…AND HE SAYS ABSOLUTELY NOTHING ABOUT OFFERING UP MORE STIMULUS!  In fact, he talks about how the economy is growing at a moderate pace.  Yellen’s comment, which once again I remind you were nothing new, created a market frenzy in which investors traded on nothing but pure unadulterated speculation.  (Do you REALLY think Yellen would dare say anything on Wednesday if Bernake was going to make an official announcement on Thursday?   NOT A CHANCE!).

I have to imagine if I was the Fed Chairman sitting in my living room on Wednesday watching the market rally on people believing I am going to say something on Thursday, that I have absolutely no intention of saying, I would be laughing my butt off.

The economy is moving along ever slow slowly.  Yes we have employment heading in the wrong direction along with some other economic indicators, however, by no means are we self destructing the way we did in 2008.  Unless there is a major downturn in the economy, the Fed is not going to do anything.

The biggest threat to our economy right now comes from outside the United States.  Slowing growth in China combined with the European Debt Crisis remain the biggest factors impacting our economy right now, and there is NOTHING the Fed can do to change that impact.  Look at everything the Fed has already done by keeping interest rates artificially low, yet the impact has been minimal in driving the economy forward..  There are is not much left in the Fed’s bag of tricks that can make a difference.  Only a change in the mindset of the country will alter the direction of the economy.  With the election looming this year, nothing is likely to change until after November..

JJ Mack