Weekly Economic Update- June 20, 2007

Thumbnail Sketch: Mortgage interest rates seem to be rising inexorably, but the level of new mortgage applications remains strong as well. At 464.7, the index of applications for new purchase money loans is extremely healthy—it’s 12% above where it stood last year. This may reflect, in part, that more applications don’t end up being actual originations, as people drop out of transactions and apply for more loans than they need in order to assure themselves of finding the best possible loan. But still, the numbers are good.Intriguingly, of total applications, 19% are for adjustable rate mortgages, a significant decline in recent months. That, however, represents 31% of the total dollar volume. ARMs are still being widely used to finance more expensive home purchases. But the number of ARMs being applied for overall has declined dramatically. Far fewer buyers appear to be drawn to them, and this is a bit ominous, given the fact that mortgage interest rates have been on the rise. That usually stirs more interest in ARMs. Also a bit ominous is the latest figure from the National Association of Home Builders—based on a monthly survey of builder confidence and optimism—fell another two points to 28, the lowest reading since the survey began many years ago. “In fact,” adds Moody’s Economy.com, “the traffic of potential buyers index value of 21 is such an exceedingly low number that the bottom of the housing market appears nowhere in sight.”Unsurprisingly, perhaps, housing starts decreased in May by 2.1% in the nation, though the number of new permits taken out increased by 3%. “One reason why the Fed has not lowered the current interest rate target is the pressure on prices from suppliers. This means the Fed is waiting for consumer demand to decline sufficiently to get inflation in intermediate goods under control. Another factor affecting liquidity in the housing market is that regulators are requiring better underwriting standards and warning against predatory subprime lending this year. The result is demand for single-family housing is and will remain constrained throughout the remainder of the year,” writes Patrick McPherron in Moody’s Economy.com.Whether these judgment calls prove accurate remains to be seen, of course. KEY INDICATORS
Gold $661.20/ounce [up]
Crude Oil (Brent) $71.86/barrel [up]
U.S. Dollar to…
Euro .7452 [down]
Japanese Yen 123.47 [up]
6-mo Treasury Bill Yield 4.90%
10-yr Treasury Note Yield 5.11% [both down slightly]
30-yr Fixed-rate Mortgage 6.86%
15-yr Fixed-rate Mortgage 6.57%
1-yr ARM 6.19% [HSH average rates: 30-yr up 7 bps, 15-yr up 8 bps; ARM up 9 bps]
Mortgage Bankers Association Mortgage Applications Index week ending 6/8
Overall 666.5 (up 6.6%; down 1.7% the week prior)
Purchase Money Loans 464.7 (up 7.2%; up 1.5% the week prior)
Refinancing Loans 1854.8 (up 5.6%; down 6.3% the week prior)
Weekly Jobless Claims 6/9 311,000 first computation – 311,000 prior week (with 2,000 upward revision)
Producer Price Index (PPI) May Up 0.9% – core (with food and energy prices removed) up 0.2%
Consumer Price Index (CPI) May Up 0.7% – core (with food and energy prices removed) up 0.1%
Industrial Production May Unchanged – cap. util. down 5%

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