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For the week of June 30, 2008 - Vol. 6, Issue 26
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>> Home BaseINFO THAT HITS US WHERE WE LIVE Amid all the fretting about last week's stock performance (or lack thereof), let's not lose sight of two encouraging housing reports. Some experts felt Wednesday's report on May new home sales shows the healing process is well underway. Although the pace of sales declined in May, it matched expectations and came in above March's sales pace for the second month in a row. A bottom for sales could be forming. Even better, total inventories are down 16.9% over last year. Best of all, unsold completed new homes, which peaked at 199,000 in January, are now down to 182,000. That decline of 17,000 homes in just four months is the fastest reduction in 20 years! The median sale price for new homes in May was $231,000, down 5.7% over last year, but the average price was UP 0.5% for the year, to $311,300.
Report #2 revealed existing home sales for May INCREASED 2.0% to an annual rate of 4.99 million. In addition, the supply of existing homes DECLINED to 10.8 months from April's 11.2 months. Some observers feel the pace of sales for existing homes has already bottomed out. The annual sales rate has ranged from 4.89 to 5.11 million for the last nine months and May's reading came right in the middle. Year over year performance is also improving. The number of homes for sale is still high, but it was down by 100,000 from the previous month.
Experts are saying the conditions necessary for an eventual housing recovery are falling into place--namely, a decline in the inventory of completed new homes and a bottom in the pace of existing home sales.
>> Review of Last Week
BEARS TAKE CHARGE... Bullish investors already on the run were sent packing last week by bears who took over as stock prices dropped to their lowest levels since the fall of 2006. This was more than a little odd, considering there were encouraging economic signs like the housing reports covered above. But crude oil shot up to a record $140.62 a barrel and every week it posts a strong uptick, stocks go decisively in the other direction. Still strange, though, since last week's meeting of oil producing nations saw the Saudis make a big commitment to increase output. It seems classic supply and demand economics don't hold a candle to wild speculation in commodities.
The other negative pull on investors was also an old story. Financial stocks got hammered again with Citigroup and Merrill Lynch expecting more write-downs for Q2. But who thought the subprime mess was going to fix itself overnight?
Meanwhile, the Fed met and left rates where they were. Their much-analyzed policy statement said overall economic activity continues to expand, though inflation risks have grown. Yet they also said they expect inflation to "moderate later this year and next." So, while the Fed feels they don't have to cut rates more to stimulate the economy, they may not raise rates as quickly as some would like in order to curb inflation.
Encouraging economic news included personal income and personal spending up for May. Real Personal Consumption Expenditure (PCE) numbers showed real GDP for Q2 will get close to 2%, well above expectations. The slow-growing economy is now turning into a moderately growing one and that's the right direction!
None of this economic news made any difference to the markets. A big drop on Thursday and a moderate one Friday saw stocks fall to their worst levels since September 2006. The Dow ended the week down 4.2%, at 11,346.51. The S&P 500 came in at 1278.38, down 3.0% for the week. The NASDAQ slipped 3.8%, to 2315.15.
As usual, what's bad for stocks was good for bonds whose prices rose. This sent the yield on the benchmark 10-year Treasury, which moves counter to price, down to 3.971%, the second straight week it's gone down. This declining yield level should keep mortgage interest rates at appealing levels for serious homebuyers.
>> This Week's ForecastSHORT WEEK ENDS WITH A BANG... One day before the Fourth of July fireworks, we'll have the always high impact Employment Report. Most folks will be watching the nonfarm payroll number for June as well as the unemployment rate. Markets will be closed Friday for Independence Day, but the four-day week has plenty of economic reports for investors to ponder. But there won't be many corporate earnings reports and none from companies who can shake the markets.
>> The Week's Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of June 30 - July 4
| Date |
Time (ET) |
Release |
For |
Consensus |
Prior |
Impact |
M
Jun 30 |
09:45 |
Chicago PMI |
Jun |
48.5 |
49.1 |
HIGH |
M
Jun 30 |
10:00 |
U. of Mich. Consumer Sentiment-Rev. |
Jun |
56.7 |
56.7 |
Moderate |
Tu
Jul 1 |
10:00 |
ISM Index |
Jun |
NA |
49.6 |
HIGH |
W
Jul 2 |
10:30 |
Crude Inventories |
06/28 |
NA |
830K |
Moderate |
Th
Jul 3 |
08:30 |
Initial Jobless Claims |
06/28 |
NA |
384K |
Moderate |
Th
Jul 3 |
08:30 |
Average Workweek |
Jun |
33.7 |
33.7 |
HIGH |
Th
Jul 3 |
08:30 |
Hourly Earnings |
Jun |
0.3% |
0.3% |
HIGH |
Th
Jul 3 |
08:30 |
Nonfarm Payrolls |
Jun |
-50K |
-49K |
HIGH |
Th
Jul 3 |
08:30 |
Unemployment Rate |
Jun |
5.4% |
5.5% |
HIGH |
Th
Jul 3 |
10:00 |
ISM Services |
Jun |
51.5 |
51.7 |
Moderate |
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months. Given the Fed's policy statement this week, experts now feel current rates will stay put through September. Of course, any signs of sharply higher inflation could get the central bankers pushing up rates again. Current Fed Funds Rate: 2.00%
| After FOMC meeting on: |
Consensus |
| Aug. 5 |
2.00% |
| Sept. 16 |
2.00% |
| Dec. 16 |
2.00% |
Odds of change from current policy:
| After FOMC meeting on: |
Consensus |
| Aug. 5 |
8% |
| Sept. 16 |
32% |
| Dec. 16 |
53% | |
Mortgage News Archive
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