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Weekly Economic Forecast - June 29

Wednesday, June 29, 2011

by Don Roth

Forecast for the Week courtesy of Courtesy of Joe Nattans, Branch Manager of GMH Mortgage, LLC: Multiple high-impact reports will be released this week. Here's what you need to know.

Another busy week is ahead of us, especially with the release of multiple high-impact economic reports, not to mention Treasury Auctions:

We start off right away Monday morning with reports on Personal Spending and Personal Income, as well as the Personal Consumption Expenditures (PCE) Index, which is the Fed's favorite gauge of inflation.
In addition to seeing new data on consumer spending and income, we'll also see new reads on how consumers feel about the economy. On Tuesday, the Consumer Confidence report will be released, followed by the Consumer Sentiment Index on Friday.
Manufacturing will also be in the news this week. On Thursday, we'll see the Chicago PMI, which surveys more than 200 Chicago purchasing managers about the manufacturing industry and is a good indicator of overall economic activity. Then on Friday, we'll see the ISM Index, which is considered the king of all manufacturing indices and the single best snapshot of the factory sector.
The housing industry will also be highlighted this week, with the release of Pending Home Sales report on Wednesday.
Finally, on Thursday the markets will see a new read on the weekly Initial Jobless Claims report. In last week's report, the number of new Jobless Claims rose significantly to come in higher than expected. Overall, the pain in the job market continues to weigh on the economy and the quandary for the Fed is that further government stimulus or support may be warranted if things slow down further. But with more government stimulus comes further inflation fears - and since inflation is the archenemy of Bonds and home loan rates, this will be an important news story to keep watching.

In addition to those reports, the Bonds and home loan rates may also be impacted by the Treasury Auctions this week. The Treasury Department will auction off a total of $99 Billion in 2-, 5- and 7-Year Notes on Monday, Tuesday, and Wednesday. I will watch those auctions closely to see how they're received and how they impact home loan rates early in the week.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see in the chart below, Bonds and home loan rates benefited from the news last week. I'll be watching closely to see if the slower economic recovery continues... and how this week's news impacts home loan rates.

economic forecast

What Goes Up Must Come Down - Economic Week In Review

Wednesday, June 29, 2011

by Don Roth

Important economic indicators moved up and down. Find out what they mean to Bonds and home loan rates! Courtesy of Joe Nattans, Branch Manager of GMH Mortgage, LLC...

Gas prices have dropped at the pump lately, but the markets are more focused on movement in the rest of the economy. Here's a look at where some important economic indicators are headed... and what they mean to you!

Fill 'er up... oil's down! Late last week, crude oil fell under $90 per barrel after the International Energy Agency (IEA) said it would release 60 Million barrels of oil in the coming months to offset the loss of production in Libya.

Lower expectations for economic recovery. The big news last week was the Fed FOMC meeting and the release of the Fed's Policy Statement. While there weren't many surprises to come out of the meeting, the Fed did revise its forecast for the 2011 Gross Domestic Product (GDP) lower and acknowledged that the economic recovery is a little slower.

Frustratingly high. On Unemployment, the Fed stated that the pace of job growth is "frustratingly slow" and that it believes the Unemployment Rate will average 8.6% to 8.9% in the 4th quarter of 2011...which is actually higher than earlier forecasts of 8.4% to 8.7%.

Inflation on the rise? The Fed also raised expectations for Core Inflation, which strips out volatile food and energy costs. This is important because if inflation picks up, Bond prices will move lower - since yields have to move higher to attract buyers to compensate them for the pickup in inflation. And that means home loan rates may move higher as well.

Where are Stocks headed? The Fed said the second round of Quantitative Easing (known as QE2) will end as scheduled at the end of June - but there was no mention of a third stimulus package (which would be known as QE3). Their silence on this point was fairly deafening. Many experts have wondered about the possibility of a third round of QE, but it doesn't look to be in the cards at this point. It's important to note that the Stock market did not like that there was no mention of QE3, especially since Stocks have only risen the past couple of years when the Fed has been buying - like during both QE1 and QE2. It will be very interesting to see how Stocks behave once the QE2 support is removed.

Misery loves company? Here's an interesting fact for you. Believe it or not, there's actually a "Misery Index." This Index takes into account both inflation and the Unemployment Rate. Currently, it's just slightly below the level seen in December 2009, which is when the economy was still in the midst of the credit crisis. To put this in perspective, we haven't seen the Misery Index this high since 1983. And what is a bit concerning is that the Index has climbed higher each month so far during 2011. With inflation rising higher still and unemployment not ticking down, the upward trend may well continue in the near future.

Better than expected... but what's the catch? Durable Goods were reported better than expected last week. It wasn't a blockbuster reading, but it was good news in light of concerns that the economic recovery is slowing. That said, there's a catch to consider if you or someone you know is looking to refinance or purchase a home. The recent slowdown in the economic recovery has actually helped improve Bonds and home loan rates. But if the slowdown proves to be just a minor bump in the road to recovery and if future reports show modest improvements, home loan rates could move higher rather quickly.

The good news is that home loan rates are still at historical lows, making this a terrific time if you or someone you know might be thinking about refinancing or purchaing a home. It only takes a few minutes to see if you can benefit from the situation. Call or email to get started.

economic indicators

Central Pennsylvania Real Estate Sales Statistics - May 2011

Monday, June 20, 2011

by Don Roth

The Central Pennsylvania real estate sales numbers for May are in and they are very telling. The number of homes that sold in May decreased by 37% compared to May 2010. Yes, that is a dramatic drop but we must remember that in 2010 we were winding down from the Federal Governments First Time Homebuyers Tax Credit incentive which accomplished the intent of selling more homes in an effort to get the economy moving at a faster pace. It worked and probably it sacrificed future home sales.

The average sales price of Central Pennsylvania real estate declined by 6% from 2010 and that decrease does not concern me since when reviewing full year over year average sales prices have held constant for the last three years, which averaged in the $185,000 to $190,000 range. You are probably saying that I am looking through rose colored glasses and that there are positives in the real estate market. Well, the numbers of pending sales (homes that are under contract but have not settled) increased by 17% since the end of the first quarter of this year and are up over 20% since the end of 2010. Factor in the extremely attractive mortgage rates, currently at 4.50% for a 30 year fixed rate and the abundance of inventory there are many reasons to be positive in the next coming months. Are we out of the woods totally, probably not but I am seeing the positives rather than the negatives. Yes there is still some pricing pressure in the market but when you read that the alternative to owning a home is renting and those costs are accelerating at a faster pace than total mortgage payments, in my opinion there is not a contest between owning a home or paying rent.

This region has not had a high percentage of short sales and foreclosures that many areas of the country have experienced so that is an extreme positive. We will see more positives in the future so if you are a buyer take advantage of this opportune time. If you are a seller be sure that your home is properly priced and as I heard recently insure that your home is a compelling value.

Central Pennsylvania real estate sales statistics

Top 10 Best Bets for Housing Recovery

Monday, June 13, 2011

by Don Roth

This article from the Pittsburg Association of Realtors reports Pittsburg as being in the Top 10 Best Bets for Housing Recovery...

“Best recovery bets” for housing markets in American cities was recently compiled by Les Christie, a CNN.com real estate reporter. His top-ten list included only one Pennsylvania location (Pittsburgh) but recently, Fiserv, an independent firm, reported forecasts for several cities in the Commonwealth. The forecasts from both sources are predicted through 2012.

Best recovery chances for 2012

1. Tacoma, WA (Prices in nearby Seattle are about 50 percent higher)

2. Palm Bay, FL (Was significantly overbuilt leading to 50 percent declines in prices)

3. Memphis, TN (The economy has been strengthening and foreclosures are slowing down)

4. Rochester, NY (Housing is cheap and there are several good, local employers)

5. Pittsburgh (Prices only fell 0.6 percent from peak and prices were relatively low to start)

6. Seattle, WA (Limited supply of housing with a good mix of employers)

7. Tucson, AZ (Median prices fell 38 percent already and market is better than in Phoenix)

8. Colorado Springs (Growing population and affordable homes are there)

9. Charlotte, NC (Watch for corporate growth to return)

10. New Haven, CT (Expected to grow with national economy)

Source: Les Christie, CNNMoney.com, (February 2, 2011)

This study is further indication of the upcoming recovery of American housing markets by 2012. Much depends on the general economy, of course, but there is growing excitement about the return to a period of positive house appreciation within the next 12 to 18 months, even if the rates are modest.

Fiserv’s New Study

Fiserv tracks some 384 U.S. housing markets. It provided the following forecasts for several Pennsylvania cities:

Note that every forecast for 2010/2011 for the Pennsylvania cities resulted in a decline except for Pittsburgh. Every prediction for the following year (2011/2012) was better than the year before, without exception. Nine of the 14 cities were predicted to have positive appreciation rates by 2012! Taken together, this study predicts a turnaround in house price changes throughout the Commonwealth.

In recent years, the housing market has become an uncertain sector in terms of predictions. The data shows the impact of the so-called “double dip” in house prices many commentators have predicted. Yet, such a decline is clearly thought to be short-lived, at least in Pennsylvania. There is considerable reason for optimism.

pittsburg top 10 for housing recovery