Week of July 26 – July 30, 2010

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Weekly Economic ForecastIndicator This Week Last Week

GDP 2010 Q3: 2.5% 2.5% ↔

GDP 2010 Q4: 2.7% 2.7% ↔

GDP 2011 Q1: 2.3%

Unemployment rate by the year-end 2010:

9.9% 9.9% ↔

Average 30-year fixed mortgage rate by the year-end 2010:

5.0% 5.1% ↓

NAR's monthly official forecast as of July 1st

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Monday, 07/26/10•Sales of new single-family home sales rebounded strongly from the May’s record low, an indication that the after-effect slump from the home buyer tax credit impact may be over. While historically low mortgage rates are enticing, high unemployment keeps potential buyers on the other side of the fence. The future of the housing market depends on job growth. New home sales inventory conditions improved as home builders had earlier cut back on building. •The seasonally adjusted annualized New Home Sales level in June rose to 330,000. The number is 23.6 percent higher than the revised data for May but is 16.7 percent lower than the same month one year ago.

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Tuesday, 07/27/10•The Case-Shiller Price Index, a three-month moving average of 10 metro areas, posted a 5.4% gain for May of 2010 versus May of 2009. At the metro level, 19 of 20 markets in the Case-Shiller 20-city composite index rose from April to May. Only 12 of the 20 markets had a stronger monthly growth rate in May than April, suggesting that price growth in some markets is decelerating, though still positive.•Price growth is critical to the housing and economic turnaround. Stable prices enable homeowners to refinance and allow banks to lend the money that grows the economy and employment. This morning’s release suggests that price stabilization has a firm footing.

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Tuesday, 07/27/10 (cont’d)•Consumer confidence fell to 50.4 in July from 54.3 in June. Concerns over finding work and a potential future decline in income weighed down the index. However, plans to purchase a major appliance jumped from 23.7 to 28.5 over the same period, possibly reflecting the surge in tax-credit home buyers kitting out their new homes. Plans to purchase a home slipped from 2.0 to 1.9.•Lackluster confidence is weighing down the economy. Consumers won’t spend if they are worried about their job, concerned that their income may decline, or struggling to find employment. The decline in plans to purchase a home is in-line with expectations for the post-tax credit environment, but the decline is relatively moderate.

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Wednesday, 07/28/10•Mortgage purchase applications increased 2.0 percent for the week ending July 23rd, the highest level since late June but still near 13-year lows. Purchase applications do not take into consideration all-cash purchases which according to the REALTORS® Confidence Index made up 25 percent of transactions.•Purchase applications were down 34.2 percent from the same week a year ago.•Refinances were down 5.9 percent, as mortgage rates rose slightly to an average rate of 4.69 percent for a 30-year fixed mortgage.•Durable goods orders fell one percent in June. It was expected that orders would rise for the month. Automobiles were up 2.5 percent on a positive note.

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Thursday, 07/29/10 •The number of people requesting unemployment checks declined by 11,000 in the past week, however, the current figure of 457,000 remains high. It needs to fall to under 400,000 to make a dent in the unemployment rate. It is predicted to remain at about 10 percent through the end of the year. •The total number of people who continue to receive unemployment benefits increased by 81,000 to 4.56 million. The labor market is expected to remain weak for the coming the months.

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Thursday, 07/29/10 (Cont’d)

•Mortgage rates continue to trend lower. The average 30-year fixed rate in the past week at 4.54%. This generational low rates is unlikely to remain for a long time. NAR believes it will top 5% by the year end.•According to the Beige Book released July 28, 2010, “Nearly all Districts reported sluggish housing markets in the months since the homebuyer tax credit expired on April 30.”•Additionally, “Commercial and industrial real estate markets continued to struggle in all twelve Districts. Overall, vacancy rates were flat to slightly increased and continued to exert downward pressure on rents. Construction activity remained weak in most Districts.” 

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Friday, 07/30/10•The first GDP estimate for the second quarter was released today and showed that the economy grew at a seasonally adjusted annual rate of 2.4%. This estimate is based on incomplete data that is subject to revision. The most recently revised data for the first quarter of 2010 show a growth rate of 3.7 percent, but the previous three estimates had ranged much lower, from 3.2 to 2.7 percent.•Contributors to the acceleration in GDP came from nonresidential and residential fixed investment, the growth rates of which more than doubled. The homebuyer tax credit was a likely contributor to the residential fixed investment boost, but both types of fixed investment were growing from low levels. Federal and state and local government spending also provided a bigger boost in the second quarter than in the first. •Consumption increased at a somewhat slower rate than in the first quarter, 1.6 as opposed to 1.9 percent. 

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Friday, 07/30/10 (Cont’d) •In addition to the quarterly release, the BEA also released its annual revision of GDP data. The revision led to a fall in the average annual rate of GDP growth by about 0.2 percent. The average annual growth rate of disposable personal income was revised up from 1.2 to 1.5 percent from 2006 – 2009.•The University of Michigan Consumer Sentiment data showed that consumers are more anxious this month than last month. The Index of Sentiment dropped 10.8 percent in July while the expectations sub-index declined 10.7 percent and the current conditions sub-index declined 10.6 percent. Consumers expect stagnant incomes and a week job market for the year ahead which does not bode well for spending.

 

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