As you can see in the chart below, the Jobs Report for February
showed 36,000 jobs lost in February, which was better than the 68,000+
job losses that were expected. Adding to the positive tone of the
report were upward revisions to the prior two month’s reports showing
35,000 fewer jobs lost. However - helping the numbers were 15,000
temporary census worker hires made by the government. Without these,
actual job losses would have exceeded 50,000 for February.
———————– Chart: Nonfarm Payrolls
Additionally, the Unemployment Rate remained at 9.7%, better than
expectations of a rise to 9.8%. But a deeper look beyond the headlines
of the report showed what many consider to be the Real Unemployment
Rate to be at 16.8%, a rise from last month’s 16.5%.
This rate includes both discouraged workers - those who are no
longer seeking work at this time - and those who are working part-time
that would rather be “workin’ nine to five” with full time employment,
but are forced to accept part time out of necessity to earn whatever
they can. And just last month, another nearly 500,000 people accepted
part time work, citing economic reasons for doing so.
In related news, Productivity rose by 6.9% during the Fourth quarter
of 2009, up from the previous reading of 6.2%. This is an encouraging
report, because during an economic recovery, it is normal to see a pick
up in productivity before seeing fresh job creations. Think about it -
companies may start to see their business pick up, but before making
the commitment of hiring new workers, they will squeeze more
productivity out of their present staff. Job creations may be coming -
but it appears that the labor market recovery will be slow going.
Bonds attempted to rally through the week, but ultimately, improvements in Stocks and positive economic news caused Bonds and home loan rates to end the week around the same levels as where they began.
ALERT! Two
important deadlines are on the horizon: the Fed will stop buying
Mortgage Backed Securities at the end of March (which means home loan
rates may soon be on the rise), and the Homebuyer’s Tax Credit is due
to expire on April 30. If you or any of your friends, family members,
neighbors or colleagues want to learn more about how you can benefit
from the current situation, give me a call or email - I’d be happy to
explain more about the opportunity at hand.
WHILE THE LABOR MARKET HAS BEEN STRUGGLING FOR AWHILE,
THE GOOD NEWS IS THAT CERTAIN CAREER PATHS ARE DEFINITELY ON THE RISE!
CHECK OUT THIS WEEK’S MORTGAGE MARKET GUIDE VIEW FOR MORE DETAILS.
Forecast for the Week
It
will be a quiet week when it comes to economic reports, but with the
healthcare debate heating up in Washington and the Fed’s Mortgage
Backed Securities Purchase program winding down, there are still plenty
of events that could impact the markets and home loan rates.
On the economic report front, Thursday brings another Initial
Jobless Claims Report. Last week’s Initial Jobless Claims met
expectations, but the big news was that the report showed 5.7M people
claiming EUC (Emergency Unemployment Compensation) benefits, which was
an increase of over 207,000 from the prior week.
On tap for Friday is the Retail Sales Report, and as the most-timely
indicator of broad consumer spending patterns, it is important to see
how the numbers come in. In fact, last week’s Personal Consumption
Expenditure report revealed that during January, consumers made less,
saved less and spent more - but it remains to be seen if the increase
in spending will show up in the Retail Sales Data.
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 made some improvements
during the week, but the gains were capped by a rally in Stocks and
positive economic data. I’ll be watching closely as always during the
coming week - and please feel free to contact me anytime to learn more,
or discuss your own financial and home loan situation.
Chart: Fannie Mae 4.5% Mortgage Bond (Friday Mar 05, 2010)
Fewer homes went under contract in January as the housing market continues to limp through the winter months.
According to the National Association of Realtors®, the Pending Home Sales Index fell to its lowest level in 3 quarters this January. By contrast, in October 2009, the index had touched a 3-year high.
The Pending Home Sales Index measures the number of homes that have gone under contract to sell, but have yet to close nationwide. It’s compiled using data from more than 100 regional listing services and 60-plus brokerages — the sample set encompasses 20 percent of all home resales in a given month.
Economists have come to rely on the Pending Home Sales Index because of its high correlation to actual home sales. 80% of all home marked “pending” close within 60 days. Many of the rest close within 120.
Therefore, when we see Pending Home Sales show weakness like it did in January, we can infer that home resales will remain weak through the spring.
But will they really?
Fewer sales should drag down home prices, bringing more buyers into the market
Mortgage rates are still very low, but are poised to rise in just a few weeks
In other words, there’s a confluence of factors that could lead to a rush of sales around the country over the next two months, reversing the housing market’s recent momentum
Conforming and FHA mortgage rates have improved over the last 10 days, but that could all change this Friday with the release of February’s Non-Farm Payrolls report.
Non-Farm Payrolls is the official name of the government’s monthly jobs report and, given the fragile state of the U.S. economy, Wall Street will be watching it closely.
Mortgage rates could spike come Friday morning.
Jobs are an important part of the nation’s recovery. Among other concerns, unemployed Americans don’t spend as much money on goods and services, and are more likely to default on a mortgage. This retards economic growth and increases the potential for foreclosures.
When jobs numbers worsen, therefore, it follows that economic projections worsen, too.
Poor employment figures draw money away from the stock markets and into less-risky bond markets, including mortgage-backed bonds. Mortgage rates improve as a result. Conversely, when jobs numbers improve, stock markets gain and bond markets worsen.
Analysts expect that a net 30,000 jobs were lost in February.
The Bureau of Labor Statistics press release hits at 8:30 A.M. ET, roughly an hour before Friday’s mortgage pricing will be available to consumers. If you’re worried about rates rising on the heels of a strong jobs report, therefore, be sure to get your rate lock in today instead. Once Friday gets here, it may be too late.
According to the the National Association of Realtors®, “distressed homes” represented nearly 2 of every fifth home sold in January 2010. Clearly, real estate investors are taking advantage of good deals on cheap property. But there’s risk involved.
This NBC Today Show interview first ran in March 2009, featuring real estate expert Barbara Corcoran. Despite its age, the message remains relevant. Today may be a terrific time to buy a bank-owned home — just make sure you do your research first. There’s plenty of ways for investors to get burned.
Corcoran also gives pointers on how to evaluate a prospective tenant.
Foreclosures should represent a large number of 2010’s total home sales and will offer interesting opportunities to bona fide real estate investors. be you jump in, make sure to watch the video. The rents you save may be your own.
Remember, the stats and the data are from 12 months ago, but the advice stays meaningful
The winter months have not been kind to home sales.
After plunging 17 percent in December, Existing Home Sales fell by an additional 7 percent in January, according to the National Association of Realtors®. An “existing home” is a home resold by a previous owner (i.e. not new construction).
In looking at the annualized, adjusted Existing Home Sales data, we find:
Sales volume is at its lowest levels since June 2009
Sales volume fell below its 12-month rolling average
Home supplies are at a 5-month high
These are similar findings to the New Home Sales data issued by the government last week. That report put new home sales at a 40-year low and showed new homes supplies higher by an entire month.
But don’t think housing rebound has halted! Home sales are cyclical and there are outside forces on today’s market.
For one, the market is still feeling the after-effects of the original First-Time Home Buyer Tax Credit. Sales spiked in the months leading up to the original November 2009 expiration date. A pull-back is natural and expected.
Looking at the long-term trend, Existing Home Sales volume appears right in line.
Furthermore, weather across much of the U.S. was awful in January. That, too, can impede home sales as homes are neither shown nor negotiated when weather is majorly inclement.
Anecdotal evidence is showing sales activity higher through February and into March. And, although it’s unlikely we’ll see a spike through April like we did last November, buy-side demand for homes should remain strong. The good news of the sagging sales reports is that today’s buyers may find home prices are lower and sellers are more willing to negotiate.
Last week’s Gross Domestic Product (GDP) report showed that the economy grew 5.9% in the 4th quarter of 2009, which was in line with expectations and the best GDP reading in more than 6 years - which on the surface, sounds like a great number. However, the gains came from rebuilding of inventory and very modest business spending - not from consumer spending. The biggest component of GDP is consumer spending and the revised number on that front came in lower than expected, and far worse than the 3rd Quarter of 2009, when the government’s Cash for Clunkers program temporarily boosted sales.
On the housing front, Existing Home Sales for January were reported at 5.05 Million units, which was less than expectation of 5.44 Million. As you can see from the chart below, Existing Home Sales have now declined for two consecutive months. New Home Sales for January were also reported below expectations last week.
Odds are that inclement weather affected the housing market negatively in January - since people are less likely to go house hunting in the midst of snowstorms and freezing temperatures. But in any case, last week’s data demonstrated that the housing market remains a bit lethargic.
The good news is that today’s affordable home prices and amount of supply on the market - not to mention low rates and the government’s Homebuyers Tax Credit - present tremendous opportunities for homebuyers who are looking for a great deal.
———————– Chart: Existing Home Sales (By Month)
So how do consumers feel about the economy? Last week, we got a look at two different reports…and both indicated that consumers don’t share the rosy outlook of politicians and the media. Consumer Confidence was reported at 46.0, which was much lower than expectations of 55.0. In addition, the University of Michigan reported that Consumer Sentiment also fell in February. Both reports pointed to ongoing concerns over employment as a major reason for the drop in consumer attitudes about the economy.
To help make ends meet during the recession, some consumers have turned to earning cash as a landlord. If you or someone you know is considering doing the same, read the view article below for important advice to help make sure you’re successful!
Forecast for the Week
This will be a big week of news, starting off right away Monday morning with reports on Personal Income and Personal Spending. We’ll also get a look at the Core Personal Consumption Expenditure (PCE), which is the Fed’s favorite gauge of inflation.
As if that weren’t enough news for one day, we’ll also see the Institute for Supply Management Index on Monday. This is the king of all manufacturing indices and is considered the single best snapshot of the factory sector, so the markets will be paying attention to this report.
Toward the end of the week, we’ll get another look at employment and housing with the reports on Initial Jobless Claims and Pending Home Sales on Thursday.
Finally, the week ends with a bang when the official Jobs Report is released. This report includes the latest government data on job losses and the unemployment rate, as well as the average work week and hourly earnings. With the ongoing concerns over the struggling job market, it will be important to get a current read on the situation.
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, Mortgage Bonds were able to rally last week on weak housing numbers and the struggling jobs market, resulting in improved home loan rates. I’ll be watching carefully in the week ahead to see if Bonds and home loan rates can build on their positive momentum.
Chart: Fannie Mae 4.5% Mortgage Bond (Friday Feb 26, 2010)
Earlier this week, the private-sector Case-Shiller Index showed home prices slightly lower between November and December. Thursday, the public-sector Home Price Index showed the same.
Publishing on a 2-month lag, the Federal Home Finance Agency said home prices fell by 1.6 percent nationally in December. And that’s an average, of course. Some regions performed well in December as compared to November, others didn’t.
Values in the Middle Atlantic states improved slightly
Values in New England were essentially unchanged
Values in the Mountain states sagged, down 3.5%
These aren’t just footnotes. They’re an important piece toward understanding what national real estate statistics really mean. In short, “national statistics” are just a compilation of a bunch of local statistics.
For example, if we dig deeper into the FHFA Home Price Index 70-page report, we find that cities like Terre Haute, IN, Buffalo, NY, and Amarillo, TX posted year-over-year home price gains. You won’t see that in a “national” report.
Furthermore, it’s a sure bet that those same cities, you could find neighborhoods that are thriving, and others that are not. Just because the city shows higher home values overall, it won’t necessarily be the case for every home in the city.
Every street in every neighborhood of every town in America has its own “local real estate market” and, in the end, that’s what should be most important to today’s buyers and sellers. National data helps identify trends and shape government policy but, to the layperson, it’s somewhat irrelevant.
So, when you need to know whether your home is gaining or losing value, you can’t look at the national data. You have to look at your block — what’s selling and not selling — and start your valuations from there.
The housing recovery showed particular weakness in the New Homes Sales category last month — good news for homebuyers around the country.
A “new home” is a home for which there’s no previous owner.
New Home Sales fell 11 percent from the month prior and posted the fewest units sold in a month since 1963 — the year the government first started tracking New Home Sales data.
Right now, there are roughly 234,000 new homes for sale nationwide and, at the current sales pace, it would take 9.1 months to sell them all. This is nearly 2 months longer than at October 2009’s pace.
The reasons for the spike in supply are varied:
The original home buyer tax credit expired in November
Weather conditions were awful in most of the country in January
Weak employment and consumer confidence continue to hinder big ticket sales
Now, these might be less-than-optimal developments for the economy as a whole, but for buyers of new homes, it’s a welcome turn of events. Home prices are based on supply and demand, after all.
As a result, this season’s home buyers may be treated to “free” upgrades from home builders, plus seller concessions and lower sales prices overall.
It’s all a matter of timing, of course. New Home Sales reports on a 1-month lag so it’s not necessarily reflective of the current, post-Super Bowl home buying season. And from market to market, sales activity varies.
That said, mortgage rates remain low, home prices are steady, and the federal tax credit gives two more months to go under contract. It’s a favorable time to buy a new home.
Using data compiled in December, Standard & Poors released its Case-Shiller Index Tuesday. The report shows home prices down just 2.5% on an annual basis, a figure much lower than the 8.7% annual drop reported after Q3.
According to Case-Shiller representatives, the housing market is “in better shape than it was this time last year”, but some of the summer’s momentum has been lost. 15 of 20 tracked markets declined in value between November and December 2009.
Meanwhile, it’s interesting to note the 5 markets that didn’t decline — Detroit, Los Angeles, Las Vegas, Phoenix and San Diego. Each of these metro regions were among the hardest hit nationwide when home prices first broke. Now, they’re leading the pack in price recovery.
For some real estate investors, that’s a positive signal. But we also have to consider the Case-Shiller Index’s flaws because they’re big ones.
As examples:
Case-Shiller data is reported on a 2-month lag
The Case-Shiller sample set includes just 20 U.S. cities
There’s no “national real estate market” — real estate is local
That said, the Case-Shiller Index is still important. As the most widely-used private sector housing index, Case-Shiller helps to identify broader housing trends and many people believe housing is a key element in the economic recovery.
If the markets that led the housing decline will lead the housing resurgence, December’s data shows that full recovery is right around the corner.
The story behind the headline was sourced from the Freddie Mac Primary Mortgage Market Survey, am industry-wide mortgage rate poll of more than 100 lenders. The PMMS has reported mortgage rate data to markets since 1971 and is the largest of its kind.
Unfortunately, rate shoppers can’t rely on it.
See, unlike governments and private-sector firms, when consumers are in need mortgage rate information, they need the information delivered in real-time; for making decisions on-the-spot. Consumers need to know what rates are doing right now.
The Freddie Mac survey can’t offer that.
According to Freddie Mac, the survey’s methodology is to collect mortgage rates from lenders between Monday and Wednesday and to publish that data Thursday morning. The survey results are an average of all reported mortgage rates. The problem is that mortgage rates change all day, every day. The PMMS results are skewed, therefore, by methodology.
And, meanwhile, the issue was compounded last week because mortgage rates shot higher Wednesday afternoon — after the survey had “closed”. The market deterioration ran into Thursday, too — again, unable to be captured by Freddie Mac’s PMMS.
Although the newspapers reported mortgage rates down last week, they weren’t. Conforming mortgage rates were higher by at least 1/8 percent, or roughly $11 per $100,000 borrowed per month. In some cases, rates were up by even more.
Newspapers and websites can give a lot of good information, but pricing is far too fluid to rely on a reporter. When you need to know what mortgage rates are doing in real-time, make sure you’re talking to a loan officer. Otherwise, you may just be getting yesterday’s news.
Conforming and FHA mortgage rates have improved over the last 10 days, but that could all change this Friday with the release of February’s Non-Farm Payrolls report.
The winter months have not been kind to home sales.
