Weekly Economic Summary

After a volatile week in the markets, you may be wondering where bonds and home loan rates go from here. Read on for details.
There were only two economic reports released last week, and the news from them was mixed. Productivity rose 1.6% in the 2nd quarter of 2012. Higher productivity signals that companies are squeezing more out of their current employees and may not add workers, which could slow job growth. There was a bit of good news on the labor front, though, as Initial Jobless Claims came in below expectations, declining to 361,000.
Also of note, the Fed’s Eric Rosengren stated that the current U.S. economic outlook calls for another round of bond buying (known as Quantitative Easing, or QE3). Remember that once an official announcement about QE3 is made, bonds and home loan rates could suffer as stocks would likely rally.
So where do Bonds and home loan rates go from here? While bonds and home loan rates worsened last week due to some optimism out of Europe and a better than expected Jobs Report for July, there are many reasons why bonds and home loan rates should have better weeks ahead. There is evidence of a weakening economy here in the U.S. For example, the expectations component of the University of Michigan Consumer Sentiment Report came in at 65.6 in July, the lowest reading of 2012.
In addition, the ongoing problems in Europe and the upcoming election this fall will bring uncertainty and bonds (and therefore home loan rates, which are tied to mortgage bonds) typically benefit from uncertainty, as investors see bonds as a safe haven for their money. Technical trading levels will also be an important factor to watch closely in determining what happens next with stocks, bonds, and home loan rates.
The bottom line is that now is a great time to consider a home purchase or refinance, as home loan rates remain near historic lows.

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Weekly Economic Summary

July 25, 2012
Last week in review (July 16-20, 2012)
The majority of economic reports released last week were uncertain about the economic outlook. Retail Sales fell more than expected, while the NY State Manufacturing Index remains at relatively low levels. In addition, the National Association for Business Economics (NABE) reported that the outlook for job growth has fallen due to a weakening economy. The survey revealed that 23% of those polled in July think U.S. employment will rise over the next six months, down from 39% in April.
But the economic news wasn’t all negative. Inflation at the consumer level remained tame in July, while housing starts for June increased nearly 7% to 760,000. This marks the highest level for housing starts since October 2008. Since home builders don’t start a house unless they are fairly confident it will sell upon completion, if not before, changes in the rate of housing starts can tell us a lot about demand for homes and the construction outlook.

In other important news last week, Fed Chairmen Ben Bernanke was on Capitol Hill delivering his semi-annual testimony before both the Senate and House. He confirmed that the U.S. economy is weak, uncertainty in Europe is threatening U.S. growth, and unemployment is stubbornly high. But perhaps more significant was what Bernanke didn’t say: There was no mention or hint of another round of bond buying (known as Quantitative Easing or QE3) at the next Fed meeting.
Rumors or hints of QE3 could help bonds (and thus home loan rates, which are tied to mortgage bonds), but once an official announcement is made, bonds and home loan rates could suffer as stocks would likely rally. However, the weak economic data here and the continued problems in Europe mean that investors will likely continue to see U.S. bonds as a safe haven for their money, helping home loan rates in the process.
As mentioned, inflation at the consumer level remains low, a good sign for bonds, as inflation hurts the value of fixed investments like bonds. Low inflation is also good for home loan rates since they are tied to mortgage bonds.

The takeaway is that it continues to be a great time to purchase or refinance a home, as home loan rates remain at historic lows.

In the news this week (July 23-26, 2012)

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Congress Reauthorizes the National Flood Insurance Program!

In a major victory for REALTORS®, Congress has reauthorized the National Flood Insurance Program for five years. Moe Veissi, 2012 NAR President, sent the following email announcing the program’s passage and recommitting NAR to advocating for your interests:
You did it! All the DC pundits said that nothing would be accomplished in an election year! Late last week Congress finally acted on one of your key legislative priorities, a 5-year reauthorization of the National Flood Insurance Program (NFIP). You just proved them wrong because you didn’t give up, and now you have the victory to confirm it!
The 5-year reauthorization will finally bring certainty to real estate transactions in more than 21,000 communities nationwide where flood insurance is required for a mortgage. The bill ensures the program will continue long-term for more than 5.6 million business- and home owners who rely on it.
This has been a long and arduous battle. The NFIP suffered through 20 short-term extensions and hobbled along for over four years without a long-term reauthorization. But, because of your resolve and with your help and influence, NAR’s management and leadership over the past many years, and most importantly, you, our members, stayed the course to give lenders and homeowners more certainty confidence in the mortgage and real estate market place with available flood insurance for existing homeowners and those buying and selling.
I’m sending you this email to reinforce the commitment NAR makes to you – our key activists – and to every other member who expects us to persevere on issues of importance to our members and your clients – the consumers, homeowners, and future homeowners. It was your charge to us not to give up, not to accept anything less than a long-term reauthorization of NFIP. So, we battled to get every short-term extension until the full 5-year reauthorization was approved.

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