Market News Update - Home Affordability Index Slightly Declines

With the belief that the Fed is not rushing to begin the tapering of their economic stimulus program, the stock market moved into record territory this week.  Additionally, the panic that has gripped the bond market has subsided and interest rates have been dropping.  Although rates are not heading anywhere close to record lows, they are at least giving potential home buyers a little sigh of relief that they are not going to continue their rapid ascent.

The Fed released the minutes from their most recent policy meeting and it was clear that they are not ready to make any changes to economic policy.  However, it does appear that the board is becoming more and more divided on what economic data would create a shift in policy.

It is hard to predict what is going to happen in the economy for the simple reason that, overall, the labor market is improving, as well as the housing market.  However, the recent rise in mortgage rates, combined with the rapid rise of home prices in many markets, is causing the home affordability index to decline.  Simply put, if the cost of acquiring a home rises, as well as the cost of borrowing for the home, ownership becomes less affordable.  Additionally, the recent rise in oil is starting to be felt at the gas pumps.  Prices are not yet at the point that they will cause most consumers to change their spending habits; however, if the increases continue, consumer behavior will likely be impacted.

Despite the rates’ gradual retreat, the impact of the rapid run up was felt in the mortgage and real estate market last week.  The Mortgage Bankers Association reported that purchase applications declined by 3% and refinances went down by 4%.  More than likely with the rate improvement this week the MBA’s next report will show an increase in mortgage applications for both purchases and refinances.  Rates overall are at the highest point they have been in 2 years.

First time jobless claims shot up; however, the July 6th week is filled with special factors that could cause the jump.  Claims rose 16,000 to 360,000 which is far above the Econoday consensus for 337,000.  The 4-week average is up a sizable 6,000 to 351,750, which, against the month-ago comparison, is also up 6,000 in a reading that doesn't point to improvement underway in the labor market.

The special factors that could play a role in the jump are the holiday shortened week, the summer retooling in the auto industry, and the end of the school year. All these factors make today's report very hard to interpret as a trend or just a blip.

Market moving reports for next week are:

• Monday July 15^th – Retail Sales
• Tuesday July 16^th -  Price Index, Industrial Production and Housing Market Index
• Wednesday July 17^th - MBA Applications and Housing Starts
• Thursday July 18^th – First Time Jobless Claims

I appreciate your business and look forward to talking to you soon! Have a great day!!!
 

Sincerely,

Cindy Tomlinson
Loan Officer

USLending Company

DRE Lic # 01520422
NMLS # 214851   

 

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