Keller Williams Realty - The Hatcher Group
6 Deering Street | Portland, Maine 04101
207-775-2121 Office | 207-775-2122 Fax
Generally weaker than expected economic data again pushed mortgage rates to new lows last week. In a highly anticipated speech Friday morning, Fed Chief Bernanke confirmed that economic growth has fallen below the expected levels in recent months. He also suggested that the Fed is unlikely to take further stimulus action unless the economy deteriorates significantly. The current Fed outlook is for below average economic growth with low
inflation, which is a favorable environment for low mortgage rates.
The impact of the homebuyer tax credit was seen in the weak housing market data released this week. July Existing Home Sales dropped 27% from June to an annual rate of 3.83 million units, the lowest level since May 1995. July New Home Sales showed a decline of 12% from June to the lowest level ever recorded. These figures sound terrible, but they really just demonstrate the effect of the homebuyer tax credit on the timing of purchases. The National Association of Realtors (NAR) still expects total existing home sales this year to be roughly the same level as last year.
Since the financial crisis, the Federal Housing Association (FHA) has grown rapidly and is now backing nearly half of all new home-purchase loans. To boost reserves and reduce risk to taxpayers, the FHA will raise the annual fee it charges to new borrowers. In particular, for case numbers ordered October 4 or later, it will raise annual insurance premiums (MIP) to 0.85% or 0.90%, based on LTV, up from 0.55%.
Next Thursday, the City of Portland, Portland Trails, Trust for Public Lands (TPL) and the Bayside Neighborhood Association will help cut the ribbon at the start of the city’s Bayside Trail officially opening it to the public. The trail is the result of a ten year effort to re-imagine the area, stimulate economic development and build a welcoming and safe neighborhood for residents and local businesses. The one mile trail has transformed a 13.2 acre corridor that runs parallel to Marginal Way through the Bayside Neighborhood into a ribbon of green that will connect the Eastern Prom with Deering Oaks Park.
Part of a growing network of trails in Greater Portland, the Bayside Trail connects the East Bayside and Bayside neighborhoods and will become a key link connecting the city's most used trails and parks: the Back Cove Trail, the Eastern Promenade and Eastern Prom Trail, East End Beach, and Deering Oaks – and its urban core. The $2.3 million trail was funded in part by federal grants, city funds and privately raised monies and helped the city reclaim and decontaminate a prominent brownfield for recreational use in the downtown. The design and construction of the trail utilized a number of green elements including rain gardens, LED lighting, and pervious concrete that captures stormwater and avoids run-off.
Refreshments and entertainment including a live performance by Big Chief are scheduled for the celebration. People will also have the opportunity to take a guided walk along the trail. The event is open to the public.
When: Thursday, August 19, 2010
Where: Bayside Trail (Elm Street side)
Last Friday's Jobs Report showed that 131,000 jobs were lost for the private and government sectors, versus the 87,000 job losses expected. To add insult to injury, the revisions for June showed nearly 100,000 more jobs lost than had been previously reported. While some of the losses were due to the government laying off temporary census workers, the private sector was also disappointing, showing 71,000 job creations for July, worse than expectations of 83,000... and well short of the market's hope of 100,000. Rounding out the report, the Unemployment Rate remained steady at 9.5%, just below the 9.6% anticipated.
In addition, something to keep in mind is that the State governments are now under major pressure because of growing budget deficits. With tax revenues declining and budget cuts needed, States are finally having to make cuts like the private sector already has. As they start to catch up in making cut-backs to headcount, this could cause the unemployment rate to worsen. Not very good news, as an improvement in the labor market is needed to fuel the economic recovery... and especially disappointing, considering the money that has been injected to try and remedy this situation.
Also in the news, the Commerce Department reported last week that Personal Spending and Incomes were unchanged in June, due to a slowing of the economic recovery in the spring. In addition, the Savings Rate increased as consumers cut back on spending.
Why is all this significant... and what does it have to do with interest rates?
It has to do with something called the velocity of money. Even though the government keeps pumping money into the system, nothing happens until that money is spent or lent, and passes from one hand to another, or one business to another. The speed at which this money passes between parties is called the velocity of money. With the job market still very sluggish, consumers aren't spending much money these days... and businesses are still reluctant to spend money making investments in their business. With present velocity at low levels, inflation remains subdued...however, once velocity increases, the excess money in the system will cause inflation.
And remember, inflation is the arch enemy of Bonds and home loan rates... which means that
even the scent of inflation can cause home loan rates to worsen.
While we certainly want to see better Jobs Report numbers in the future, Bonds and home loan rates were able to benefit from the poor report. Remember, weak economic news often causes money to flow from Stocks to Bonds as traders seek to protect their investments in the safer haven of Bonds. As a result, Bonds and home loan rates ended the week slightly better than where they began.
There will be plenty of action ahead this week, beginning with Tuesday's Federal Open Market Committee meeting. This week's meeting will be very important and closely watched as the important "extended period" language will come under scrutiny, as well as options that the Fed will discuss to further stimulate the economy and avoid deflation. Their decisions could certainly impact home loan rates, and I will be watching closely to see what happens.
Also this week, Thursday brings another Initial and Continuing Jobless Claims Report, while on Friday we will see both the Retail Sales and Consumer Price Index (CPI) Reports. Remember, last week it was reported that Personal Savings increased, so it will be important to see how this impacts Retail Sales. And, as mentioned above, any hint of inflation can hurt Bonds and home loan rates, which is why the CPI Report - which measures inflation at the consumer level - is also an important one to watch.