Produced by NAR Research Indicator Updated Forecast Past Week’s Forecast Directional Shift GDP 2010 Q4: 2.2% 2.4% ↓ GDP 2011 Q1: 2.7% 2.6% ↑ GDP 2011 Q2: 3.0% 2.3% ↑ Unemployment rate by mid-2011: 9.4% 9.5% ↓ Average 30-year fixed mortgage rate by mid-2011: 5.1% 5.0% ↑
A series of strong economic news releases last week including better-expected consumer confidence, construction spending, and pending home sales figures pushed the yield on the 10-year Treasury upward. The yield on the 10-year note reached 3.02% on December 3 rd , up from 2.87% last Monday and a low of 2.38% on October 8 th . The note has not been above 3.0% since late July of this year.
Oil prices have risen steadily in recent weeks on renewed prospects for global economic expansion. The spot price for West Texas Intermediate jumped from $83.71 per barrel on Monday of last week to $89.19 by Friday. Prices were in the $60/barrel range in late May and hovered in the $70/barrel range for much of the summer.
According to Freddie Mac, the average 30-year fixed rate mortgage (FRM) reached 4.46% on December 3 rd , up from a record low of 4.17% just three weeks earlier.
The 10-year Treasury and 30-year FRM typically move in lock-step fashion. Expect the 30-year fixed rate mortgage to rise with the 10-year note as the economy continues to improve. Furthermore, as foreclosures decline and risk in the mortgage market abates, the spread between the 10-year note and 30-year FRM will ease closer to historic norm.
The deficit commission report released last week failed to generate the 14 votes needed to gain immediate attention from Congress. Among the ideas in the report was a limitation of tax expenditures including the mortgage interest deduction and deduction for real estate taxes. Find facts on the mortgage interest deduction and a link to the Deficit Reduction Commission’s report here on realtor.org .
Yesterday evening, President Obama announced a compromise with Congressional Republicans that would extend all of the Bush tax cuts for 2 years. This compromise also extends unemployment insurance for 13 months and introduces a payroll tax cut, extends certain tax credits and reduces the tax on estates that would otherwise have increased next year. NAR expects a boost in home sales of about 60,000 in 2011 as a result. But home sales in future years could be shaved if the deficit gets out of control.
However, this compromise is currently deficit-financed. This not only raises the specter of tax uncertainty a few short years down the road, it somewhat shortens the time horizon the government has to get the financial house in order.
Mortgage purchase applications were up 1.8 percent for the week ending December 3 rd , the third consecutive increase. Applications are up 29% since the July 9 th lows. Purchase applications do not always translate into loan acceptances and transactions. Also, purchase applications do not take into consideration cash buyers who according to the September REALTORS® Confidence Index make up as much as 29 percent of transactions.
Mortgage purchase applications were down 12.7 percent from the same week a year ago.
Refinances, which made up 75.2 percent of mortgage activity, fell 1.4 percent as mortgage rates continued to move up at 4.66 percent on a 30-year fixed mortgage.
Consumer credit was up $3.4 billion in October. Non-revolving credit (cars and student loan) increased $9.0 billion, while revolving credit (primarily credit cards) was down $5.6 billion. Some of the decrease in revolving credit is due to consumers paying down balances, whereas banks have also reduced credit availability for many.
The labor market continues to improve, with the number of workers filing first-time claims for unemployment insurance falling again last week. The number of applications fell to 421,000 from 438,000 the week before. At about 400,000 claims, job creations would comfortably outpace job losses and translate into about 1.5 million net new job creations per year.
The improvement is particularly visible in the 4-week moving average, which evens out weekly swings, and which dropped 4,000 claims to the lowest level in more than two years.
The continuing claims also dropped significant 191,000 to 4.09 million. Sixteen states and territories reported an increase in jobless claims, while 37 had a decrease.
The overall U.S. trade deficit in October declined to $38.7 billion from a revised $44.6 billion shortfall in September. The reduction in trade deficit, if sustained, bodes well for economic growth in 2011.
Exports continued to improve, rising 3.2 percent, following a 0.5 percent rise in September. Imports continued to decline 0.5 percent after dropping 0.7 percent in September.
Consumer Sentiment for the first half of December was 74.2, a rise from November's 71.6. The increase is positive as is the Index that shows roughly equal improvement for expectations and for the assessment of current conditions.
Jobless claims have declined slightly and the stock market has improved slightly. Both, have influenced consumer sentiment.