Surprisingly, construction spending is up and Master Card purchases are on an increase. Reports show that the U.S. grew at a 3.9 percent pace in the third quarter. Even though home building activity is plunging, exports grew at the fastest rate in nearly 4 years. All this good economic news while inflation seems tame.
Oh yeah, did we mention the quarter percent rate cut? The Fed cut .25 basis point off the rate to make it 4.5%.
American are a little less upbeat about economic prospects . Event the Economic Optimism Indes fell 2.2 points to 53.5 for the week. 50 is neutral, so we are still in the good news range.
In response to the increasingly slow housing market, mortgage companies are adjusting their businesses and layoffs are increasing.
Interestingly, according to the National Association of Realtors, existing-home sales, finishing the third-best year on record, are projected for 2006 at 6.47 million, a decline of 8.6 percent. In 2007, they’re expected to rise steadily from the current cyclical low and reach an annual total of 6.40 million, which would be 1.0 percent lower than this year’s total.
Also worth noting, Congress recently passed a new tax deduction that allows low- and moderate-income homebuyers to deduct mortgage insurance premiums from their federal taxes if they make less than $100,000.
A Harvard study show a more upbeat view of the current housing market value correction than offered by most economists. All hinges on the course of employment growth and interest rates. The run up in housing demand over the years is buoyed by the huge increase of immigrants and their children and relatives. That trend should continue for the foreseeable future.
Both political parties are paper tigers when it comes to immigration reform. The situation is not like it was with most 2nd generation immigrants parents who had to go through strict Ellis Island immigration standards.
The number of foreclosed home returning to the market is having an effect on builders and investors. Home market values should continue a downward trend as the growing problem of affordability strengthens. The downward pressure on wages due to the large influx of immigrants is taking its toll. High housing cost and non-housing expenses leaves home ownership on a slippery slope.
Good news for those applying for mortgages. Mortgage rates sunk to 6.18% with the benchmark 3-year fixed rate mortgage indicator, ending November 22. The rate had been 6.24% one week earlier and a year ago it stood at 6.8%.
Applications for new home buyers slid 2.8% and applications for all mortgages fell 3.7% for the week of November 17th.
Further housing weakness will be triggered by a credit crunch was predicted by UCLA Anderson Forecast in a recent Investment Business Daily article.
UCLA Anderson Forecast predicted growth to rise and a fed funds rate to 4.5% from 5.25% and they see at least two, if not three, Fed rate cuts keeping economic growth this year in positive territory. Lower mortgage rates are on the horizon.
With a 8 1/2 month backlog of housing inventory, a drop in mortgage interest rates would rev up a few engines. The National Association of Realtors said that pending home sales rose 0.7%, a gain that came despite bad weather and the impact from subprime mortgage problems.
Existing home sales are dropping sales at the fastest pace in 18 years. New home sales have improved slightly. The good news is the mortgage rates have dropped for the time being. Naturally, all hinges on the inflation fears and the perceived direction prices are going when the Federal Reserve eyeballs them. The sub-prime problems hurt the lender as much as the borrowers being the mortgage companies have to find a buyer to recoup their investment.
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