LOW mortgage rates fuel clients!!

Signs that housing is coming back continue to be sporadic.  However indications are that the market is getting a little bit stronger with each passing month.  According to the nation’s home builders whose housing market index surged in July, they say “the housing market has turned the corner.  The monthly gain in the index is the largest in nearly 10 years while the level, which has been moving higher all year, is now at its highest of the recovery, since March 2007. Regions throughout the country all reported strong gains with the expectation for real growth to occur in about 6 months.  This report comes off of the dismal reports last year and is the strongest report we have seen in 2012.

The mild improvement in home sales is finally beginning to work its way into new construction.  Housing starts in June jumped 6.9 percent after dropping 4.8 percent in May. The June pace of housing starts came in higher than expectations.  This latest report is an increase of 23.6 percent from the same time last year.  The single-family and multifamily components both gained. Single-family starts increased 4.7 percent after a slight increase of 2.2 percent in May. The multifamily component, which tends to be more volatile, jumped 12.8 percent, following a 19.3 percent drop in May.

The West led the country with a 36.9 percent jump.  The Northeast followed a distant second with a gain of 22.2 percent. The Midwest declined 7.3 percent while the South decreased 4.2 percent.

As mentioned many times before in previous reports, the warm winter seems to have taken the wind out of the typically more robust spring and summer home selling season.  Existing home sales fell a surprising 5.4 percent in June which is the lowest of the year.

Record low mortgage rates continue to fuel strong demand for refinancing.  Applications for refinances soared a whopping 22.0 percent in the July 13 week.   Unfortunately the record low mortgage rates are not stimulating purchase financing as those numbers continue to remain virtually flat.

Once again investors in the stock market are showing that they are nervous about investing and trading stocks.  We are right now in the midst of 2^nd quarter profit reporting season for corporations and they, for the most part, have been positive, but nothing exceptional that is lifting investor confidence.

Europe continues to remain a major factor for uncertainty, and when you combine that with this week’s weaker than expected retail sales report, it is hard to tell when investors are going to jump back into the markets with both feet.

Signs of inflation are beginning to appear, although not at a rate which is creating any type of panic.  Although the headline for consumer prices shows that prices remained virtually unchanged, one of the reasons is that energy prices have declined which is offsetting the core inflation rate which is actually increased .2%.

The economy keeps humming along, and the presidential election is getting nastier and nastier by the day.  What scares me most is that the campaigning is really just beginning.  This election battle combined with the stalemate in Congress does not bode well for future reports on consumer confidence

JJ Mack

Rates are STILL at an all time LOW!!!

The weekly reports of mortgage rates hitting new record lows is starting to become routine.  It seems that every time someone says “that rates just can’t go any lower” that is exactly what seems to happen.  Many people are asking me “why does this keep happening?”  The answer is a simple one.  IT IS THE ECONOMY.

The instability in the U.S. economy, which appears to becoming more and more of a concern, has many investors fearful about the stock market and they just continue to place their money into government securities which drives down the yields.

When you add the financial crisis in Europe, which is nowhere near any type of resolution, you have a significant additional force playing havoc in the markets.  By now it is clear that if any major negative financial news comes out of Europe, the U.S. market tank.  In fact, it is not just the U.S. markets, it is the world markets.  These days it is not possible for any country to remain insulated from negative financial circumstances occurring in any developed country because everyone is so connected to each other.  To add more salt to the wounds, now it appears that China, which is always a major force for growth, is having their own signs of economic slowdown.

Let me get back to mortgage rates for just a moment.  One thing that is opening people’s eyes is that even though a new record low has been hit for mortgage rates, last week the MBA reported that refinance applications declined by 3.0%.  We need to wait and see if this is a sign that the pool of people left to refinance is drying up, or is the drop simply because of the holiday week and many people taking vacation.

The latest minutes for the June 19-20 FOMC reiterated that the Fed will take action “IF” it is necessary.  Many investors had been hoping for stronger language from the Fed that they are getting ready to take more action by providing another round of stimulus.

For weeks investors have been betting on the Fed announcing new monetary action to help the struggling economy.  However in every single speech given by Fed Chairman Bernake over the last couple of months, he has not given any indication that there is another round of stimulus coming.  Why investors are surprised to see in the latest release of the Fed minutes that there is no new stimulus discussion is beyond reason, but hey what do I know.

Next week is a much busier week for economic data, so the likely hood that we may see more radical moves in the stock indices is greater.  Housing is coming into focus with Housing Starts being reported on Wednesday and Existing Home Sales coming out on Wednesday.  Most analysts surveyed do not expect any significant changes in these numbers from the prior months.  The upside is that the last few readings have shown that the housing market has been improving very slowly and continues to be in much better shape than one year ago.

First Time Jobless Claims were reported Thursday morning at the lowest number in 4 years.  The improvement in the numbers is welcome news for the struggling labor markets.  Many are hopeful that this is a trend rather than simply due to the fact that last week was the July 4^th Holiday which fell right in the middle of the week and many people were on vacation.

JJ Mack

Private/Residential spending is increasing slowly!!

Given that this is the July 4^th holiday week, and Independence Day occurred smack in the middle of the week, trading in the stock market has been light.  Many people appear to be on vacation, or at least taking a few extra days off.  As much as there have been some economic reports, reaction in the markets has been subdued.  Additionally, it seems that most investors have been keeping there are eyes on Friday’s National Unemployment Report before doing any real investing.

8:30AM Friday the Labor Department announced that the unemployment rate remained unchanged at 8.2%.  This report was in line with most predictions.  The concerning part of the report is that only 84,000 private sector jobs were created.  This number is lower than expected and further indicates that employers are not expanding their workforces as much as many would hope.

Nonfarm payroll employment in May rose only 69,000, following increases of 77,000 in April and 143,000 in March.  The addition of 84,000 jobs in June indicates that we are a long ways away from job recovery and that the trend of hiring mains virtually flat.

As a point of interest, if you have been reading this newsletter for a few months, you know that I find the need to compare the actual National Unemployment Report with ADP’s Payroll Report.  ADP has such a poor track record of predicting unemployment that one will question if they are doing this with their eyes closed.

For the month of June, ADP once again proved that they are clueless in predicting employment numbers.  ADP estimated an increase of 136,000 jobs, whereas the actual number was only 84,000.  For what has pretty much become a normal monthly occurrence, ADP, a payroll company, is way off the mark.  (I am trying to figure out that if I was wrong 10 out of 12 times I made a prediction in a business that I am supposed to be an expert in, what my clients would think of me)

At the opening bell investors indicated their displeasure with the jobs report.  Within 2 minutes of trading on Friday the DOW plummeted more than 120 points as investors pulled money from stocks and placed them into the safe haven of government bonds.

Outside of Friday’s labor report, we saw a drop of First Time Jobless Claims of 14,000 in the June 30 week to 374,000.  The figure is well under expectations for 386,000, however 374,000 is still not a number that should be celebrated as it is still hovering at a level that does not support economic recovery.

On the housing front, not much to report this week, however what little news there was, it was positive.  Construction appears to be picking up steam. Construction spending jumped 0.9 percent in May, following a 0.6 percent gain in April.  The consensus was for a 0.2 percent increase for May.

The increase in May was led by private residential spending which rose 3.0 percent after a 1.7 percent rise in April. Although the new multifamily area showed the greatest strength, new single-family spending was notably positive. Compared to a year ago, overall construction is up 7.0 percent in May.

JJ Mack