Economic Indicators for week of August 16-20, 2010

Week of August 16–August 20, 2010 Produced by NAR Research

Weekly Economic Forecast
NAR's monthly official forecast as of August 3rd
Produced by NAR Research Indicator This Week Last Week GDP 2010 Q3: 2.3% 2.4% ↓ GDP 2010 Q4: 2.6% 2.6% ↔ GDP 2011 Q1: 2.3% 2.3% ↔ Unemployment rate by the year-end 2010: 10% 10% ↔ Average 30-year fixed mortgage rate by the year-end 2010: 5.0% 5.0% ↔

Monday, 08/16/10
An indicator of sales and expectations for future home building, the NAHB/Wells Fargo Housing Market Index moved down one point for the month of August, to a value of 13—the lowest since March 2009. An index value of 50 represents markets in balance; values higher than 50, point to more optimism about the market, whereas values below 50 represent more pessimistic opinions about market conditions.
The individual components of the index recorded mixed values. “Single-family sales: Present” posted a value of 14 for August, compared with 15 last month. “Single-family sales: Next 6 Months” recorded an August value of 18, three points lower than July’s 21. “Traffic of Prospective Buyers” component recorded no change with a value of 10.
Economic Updates Produced by NAR Research

Monday, 08/16/10 (Cont’d)
Builders’ low-confidence level reflects continued weakness in the housing market, where new construction is competing with distressed sales.
Today, the Federal Reserve Bank of New York also released the results of the Empire State Manufacturing Index.
Based on the index data, general business conditions improved in New York during August. The index value gained two points to 7.1 during the month. The index is composed of several components—the employment indexes posted advances, while those for prices and future expectations declined.

Tuesday, 08/17/10
New Housing starts increased in July by 1.7% to 546,000 units on a seasonally adjusted annualized basis. However, the July figure was below economists’ expectations of 565,000 starts.
The majority of the increase in starts was attributable to multi-family starts, which rose by 32% in July to 114,000 units following a 33% decline in June. Single-family starts declined by 4.2% in July to 432,000 units.
Housing starts still remain well below normal levels of approximately 1.5M units per year. The continued sluggishness of the new home starts does help the existing home market in one way. It keeps additional inventory off the market that would otherwise compete with existing homes for sale.
However, the shortfall of approximately 1M units of new housing production detracts from economic output and employment levels.

Tuesday, 08/17/10 (Cont’d)
The producer price index of finished goods increased by 0.2% in July, following a 0.5% decline in June. The majority of the increase was attributable to increases in food costs, such as fresh fruits, vegetables and eggs.
Although producer prices are 4.1% higher than the previous year, there is little evidence that higher producer prices have precipitated a commensurate rise in consumer prices. In fact, the consumer price index was only 1.2% higher in July from the previous year. Lower levels of inflation will help keep long term interest rates low. As of August 13 th , the 30-year fixed rate mortgage was 4.44% according to Freddie Mac. This rate is well below historical levels.

Wednesday, 08/18/10
Mortgage purchase applications fell 3.4 percent for the week ending August 13 th , following several weeks of unimpressive increases, and remain near 13-year lows. Purchase applications do not take into consideration all-cash purchases which according to the June REALTORS® Confidence Index made up roughly one-fourth of transactions.
Purchase applications were down 39 percent from the same week a year ago
Refinances which accounted for 81.4 percent of mortgage activity, were up 17.1 percent as mortgage rates remained near historically low levels (4.60 percent on a 30-year fixed mortgage).

Thursday, 08/19/10
The number of applicants for unemployment benefits increased in the last week and reached the highest levels since November of 2009. Initial jobless claims rose by 12,000 to 500,000. In order for the unemployment picture to improve, this number needs to fall below 400,000.
On the other hand, the number of people receiving unemployment insurance decreased by 13,000.
However, the numbers counting continuing claims do not account for people with extended benefits who are receiving payments under emergency and extended program. Those numbers increased as well.
This isn’t positive news. It is conceivable that the unemployment rate could hit 10% in few months.

Friday, 08/20/10
While across the nation, the unemployment rate was unchanged at 9.5 percent in July as reported earlier, information on regional and state unemployment released today shows that eighteen states and the District of Columbia recorded unemployment rate decreases, 14 states registered rate increases, and 18 states had no change.
Early this month, the BLS reported that payroll employment declined by 131,000 nationally. Today, the BLS reported that nonfarm payroll employment increased in 37 states and the District of Columbia and decreased in 13 states. Today’s information does not change the national forecast for unemployment, but does give a sense for the local situation which can be quite different from the national situation. How has your local area fared? For more local area information, check out the Research State and Local Market Information web page.
Economic Updates Produced by NAR Research Source: Bureau of Labor Statistics

Friday, 08/20/10 (Cont’d)
In the mortgage applications update on Wednesday, we noted that demand for purchase mortgages, measured by application data, declined to near 13 year lows despite low mortgage rates. While slack demand for mortgages is a factor, the big driver of mortgage rates is the Treasury yield.
The yield on the 10 year Treasury was as low as 3.21 percent in November 2009 then peaked at 4.01 percent in early April before declining to as low as 2.58 percent yesterday. This is only 50 basis points above the 46-year low of 2.08 percent in December 2008.

Friday, 08/20/10 (Cont’d)
Mortgage rates have followed 10-year Treasury yields in this pattern. Yesterday, Freddie Mac’s Primary Mortgage Market Survey showed that the rate for a 30-year fixed rate mortgage was a new record, 4.42 percent. Mortgage rates had reached a low of 4.71 percent in December of 2009 then climbed as high as 5.21 percent in early April before changing course and retreating to today’s new low.
Uncertainty over the economic outlook, additional easing by the Fed, and the demand for safety have driven yields to new lows, but sentiment can change quickly if better data comes in.

Economic Indicators for week of August 16-20, 2010

by NAR Research

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Economic Indicators for week of August 16-20, 2010 Presentation Transcript