Could it be that housing is finally becoming more stable and predictable? - The latest data suggests that finally the worst of the nation's housing woes are behind us. Before we start the party, I am not suggesting that foreclosures are coming to an end or even that mortgage delinquencies are declining.
The latest reports on housing are continuing the trend that post stimulus housing activity is finally increasing consistently. Pending Home Sales were revised for August showing an increase of 8% from July. September's pending sales were up as well by 4.5% continuing the trend of modest gains in activity.
The Mortgage Bankers Association reported that purchase applications for last week rose 9.3% which is the largest increase we have seen since the tax credit expired earlier this year. Refinance applications dipped 2.5% however it is expected that this number will turn around with mortgage rates once again returning to the lowest point on record. As of last week the 30 year fixed rate was down to 4.25%.
The stock market coming off the best month of the year in September seems to be continuing its upward trend. Many other areas of the economy are still showing weakness however investors seem to like prospects for the future, at least for now.
Jobless claims overall have been dropping for the last 4 weeks. This week's first time jobless claims dropped 11,000 to 445,000. This report was better than expected. Remember, just 4 weeks ago we were experiencing first time claims in excess of 500,000.
National unemployment increased to 9.6%. Although this increase suggests further problems with employment, one needs to look into the numbers to see that things are not as bad as they seem. Overall payrolls dropped by 95,000, however much of the drop is contributed to census workers and other government employees. The private sector added to their payrolls by 64,000 which is the 9th straight month of private sector employment increases.
The ISM Non Manufacturing Index showed continuing improvement which is an important indication for second-half economic growth. The stock market reacted positively to this report driving the market higher by almost 250 points on Wednesday and Thursday.
Same store sales rose 2.8% which was more than expected. It is apparent that consumers are once again starting to spend money. The lagging question that remains is that if consumers are spending, why aren't companies hiring?
The answer to this question is simply that since companies have raised expectations of employee performance, these stores are able to sell more with less staff.
The anomaly that exists is that with all of the positive economic data coming out, why are mortgage rates continuing to fall?
It appears that although for the moment we see trends of economic improvement, many consumers and businesses continue to be weary of the future. We have seen in the past consistent economic improvement only to have it turn on a dime and reverse itself. This uncertainty lends itself to the investor behavior that bond investing is still the place to be. It is also important to understand that although the stock market has been rising, overall volume has been down which investors have the ability to cause large swings in the market averages.
Economic reports due out next week are:
• Wednesday October 13th - MBA Mortgage Applications and 10 YR Note Auction
• Thursday October 14th - Weekly Jobless Claims and Producer Price Index
• Friday October 15th - Consumer Price Index, Retail Sales and Consumer Sentiment
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