Existing home sales jumped 6.5% in July which was far beyond any expectations!

Existing home sales jumped 6.5% in July which was far beyond any expectations!

Existing home sales jumped 6.5% in July which was far beyond any analysts expectations.  The National Association of Realtors believes that the jump was primarily due to panic in the market over rising interest rates.  It is believed that many fence sitting home buyers have been jumping into the market to make their purchases because of the belief that mortgage rates will continue to rise.  In recent times a jump of this magnitude may have been attributed to either seller concessions or a government stimulus program for home buying.  No such events have occurred to impact home purchases so interest rates seems to be the clear cause of the home sales increase.

The supply of homes coming on the market is currently keeping pace with sales keeping inventory numbers virtually unchanged.  The current supply of home remains at 5.1 months which is the same as June and only slightly higher than May’s inventory number of 5 months..

Mortgage rates rose very sharply in the week of August 16^th as well as this week.  The cause of rising interest rates is primarily based upon the belief that the Fed is getting closer and closer to tapering their economic stimulus program.  It is this program that has been keeping mortgage rates artificially low.  Although the Fed has not started to ease the program, many investors have been selling their bond holdings in order to minimize their losses when the Fed does begin tapering.  As interest rates rise the value of bonds deteriorates which means investors could suffer significant losses if rates rise rapidly and they don’t sell their bond holdings.  Rising rates have caused mortgage applications for refinances to plummet 8.0% in the last week.  Purchase applications rose 1.0% which ties into home buyers jumping into the market.

On Wednesday the release of the FOMC minutes from the most recent committee meeting indicates that the Fed is cautious about cutting back on their stimulus program in the near term.  However the overall indication is that the Fed will reduce their asset purchases if the recovery continues on track.  It appears that the September meeting could be a turning point for Fed policy.  The data released in the remainder of August and early September will be the guide for the next action to be taken by the Fed.

Based upon the minutes of the most recent Fed meeting, it appears that there is heavy debate within the members on what to do in regard to economic stimulus.  It seems that with each passing month there is more separation between members that want to end the program versus those that want it to continue.

The Federal Housing Finance Agency reported that home prices continue to rise rapidly.  The most recent FHFA report shows that home prices increased .7% in the month of June.

JJ Mack
916-517-1800 x 300
jj.mack@apmortgage.com
www.apmcroseville.com

Inflation for the markets does not indicate any pressure on prices any time soon!

Inflation for the markets does not indicate any pressure on prices any time soon!

All is not rosy in the economy and investors are not sure where to turn to place their money.  Recent economic data along with corporate sales information indicates that the economy may be slowing down again.  More and more we hear the rumor mill on Wall Street talking about how the economy is not quite as strong as people believe.  Some analysts are raising the expectations of falling back into a recession to the highest level of chatter we have heard in over a year.

As far as investors, they just don’t know what to do.  The stock market this week is down almost 300 points as of Friday morning.  Usually investors in this situation would turn to bonds as the place to stash their money however bond prices have been rising as well.  Traditionally when the stock markets falls, bond yields rise.  However in this last week we have seen deterioration in both the stock and bond market making it harder for investors to protect their portfolio values.

Mortgage rates have hit their highest point in over a year and it seems like they are going to keep rising.  The cause of the rate increases is anyone’s guess however many investors are still blaming The Fed for it happening.  Ever since the Fed indicated that they will begin to taper their economic stimulus program in the fall of this year interest rates have been creeping up.  We are now in the month of August and the fall is just around the corner which has many bond holders getting more and more nervous.

Next Wednesday the Fed will release ir minutes from their last meaning which may shed some more light on their future economic plans.  There is certainly fear that the minutes may reveal even stronger language that the Fed is closer to ending the stimulus program than many have been wanting to believe.  Wait until Wednesday and we will know more.

Retail sales rose only 0.2 percent in July after the previous month was revised upward to 0.6 percent from 0.4 percent.  The July number fell short of expectations which sent some jitters through the market.  Additionally Wal-Mart and Cisco reported sales below expectations which further dampened the spirits of investors.  As I said in the beginning of this report, investors would have normally jumped into bonds on this type of news however bonds prices are rising simultaneously making bonds unattractive as well.

Inflation on both the wholesale and retail level continues to remain subdued and does not indicate any upward pressure on prices coming any time soon.  The producer price index came in much softer than expected in most part due to a surprise drop in energy costs.  The index remained unchanged for the month of July after having jumped 0.8 percent in June.  The consumer price index rose a minimal 0.2 percent after jumping 0.5 percent in the prior month.

JJ Mack
916-517-1800x300
jj.mack@apmortgage.com
www.apmcroseville.com