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Market Minute - September 9, 2019

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Housing/Real Estate Market 

Pending home sales fall 2.5% in July: The index measuring pending home sales fell 2.5% following 2 straight months of gains. NAR reported that all four regions in the nation saw a decline in contract signings for existing single-family homes, with the West region having the largest decline. Compared to a year ago however, contract signings are a scant 0.3% lower.

Home prices are rising at the slowest pace in 7 years: According to the Case-Shiller home price index, the rise in the cost of buying a house continued to slow in June, only increasing 2.1% which is just one-third as fast as they were increasing a year ago. With tumbling rates and home prices leveling off, sales could get a boost in the months ahead.

Construction spending inches up: After a sharp drop in June, construction spending inched up by 0.1% in July. Compared to last year however, spending remains subdued 2.7%. Residential construction spending increased 0.6% from June but is 6.6% lower than last year.

California building permits drop to lowest level since recession: Building permits in the Golden State plunged 10% from last year and 17% year-to-date, which is the lowest level since the Great Recession of 2008. If current pace continues, building permits for 2019 will account fewer than 100,000 issued, suggesting a very lackluster housing market.


Macro Economy

Consumer spending surges in July, but inflation remains low: Americans boosted spending in July increasing it by 0.6% over the previous month, despite incomes having the smallest gain in nearly a year and barely inching up 0.1%, suggesting that consumers had to dip into their savings to cover their expenses. In any case, PCE index rose 0.2% in July bumping the yearly rate up to 1.4% from 1.3%, which is well below the Fed’s target rate of 2% and will pave the way for potentially more rate cuts form the Fed.

Consumer confidence clings near 19-year high in August, amid worsening trade war with China: Despite the U.S. stock markets taking a big hit in August and business leaders grew worrisome after U.S. trade war with China intensified, consumers have confidence in the economy as index only fell slightly from 135.8 to 135.1 and remains close to a 19-year high of 137.9 set last October. This is good news for the economy, because consumers represent more than 2/3 of the national economy presently.

The U.S. economy grew a tad slower in Q2 than initially reported: Second-quarter GDP was trimmed to 2% as exports declined and weaker business investment puts the brakes on U.S. growth despite getting a big boost from consumer spending. While GDP slowed from a 3.1% gain in the first 3 months of the year, consumer spending was even stronger in the second quarter than it first looked, suggesting that consumers are driving the economy forward while businesses wait by the sidelines on a resolution to the trade dispute with China.

Durable goods orders jump in July: Orders for durable goods rose 2.1%, marking the second straight monthly gain. However, since the manufacturing sector continues to struggle with trade tensions, global weakening and a strong dollar which makes exports less competitive, a positive gain in durable goods comes as a sign of slight relief. Still, capital goods orders are likely to be weak in the third quarter.

ISM manufacturing index falls below 50 and signals contraction: Due to a notable decrease in business confidence, the Institute for Supply Management’s manufacturing index fell to 49.1% in August from 51.2% in July. This is the lowest reading since January of 2016. The manufacturing sector has been battered by U.S.-China trade tensions as the index has fallen nearly 10 points since the trade war began Summer of last year.

ISM Non-manufacturing index grew faster in August: The index measuring the service sector of the economy grew at the fastest pace in 3 months and climbed out of a 3-year low of 53.7 to 56.4, providing as a result a slight cushion to the U.S. economy from the harmful effects of an escalating trade was with China. 16 of the 17 industries tracked by ISM expanded suggesting that the service sector of the economy has to some extent weathered the trade storm.

U.S. trade deficit dips 2.7% in July, but gap is still substantial: The deficit in USD slipped to $54 billion from a revised $55.5 billion the prior month. While this translated to a drop of almost 3% in July, the nation’s gap is still running ahead of last year’s pace even as current administration adopted stricter strategies to reverse it. Continued higher trade deficits will likely result on a drag for the U.S. GDP.

Productivity in Q2 left unchanged at 2.3%: Even though productivity remained unchanged from the government’s original estimate, productivity was strong in Q2 due to a big increase in production of goods and services. While changes in output and hours were also left the same, unit-labor costs rose a bit higher than the initial reading. Overall, U.S. productivity has increased 1.8% compared to last year, which is the fastest yearly gain since early 2015.

The U.S. economy added just 130,000 new jobs in August and unemployment remained unchanged: Despite the labor market having the smallest increase in new jobs for the past 3 months, it is still one of the strongest in almost half a decade. However, the soft employment figures and practically flat unemployment, are offering more evidence that hiring has slowed amid a broadening trade dispute with China that’s disrupted the U.S. and global economies.

Weekly jobless claims edge up to 217,000, but no evident signs of rising layoffs: The number of people who applied for unemployment benefits rose slightly from the week prior, and while the more stable monthly average also increased, there was no signs of rising or widespread layoffs even as the U.S. economy continues to face growth challenges mainly as a result of escalated trade disputes with China.Employers added 19,600 new jobs in California last month—extending the winning streak to 113 months—tied for the longest expansion since the 1960s. Unemployment remains low at 4.1%, but job growth has dipped below 2%--though California continues to outpace the nation slightly.

 

Real Estate Finance

Mortgage rates continue to drop: The 30-year fixed-rate mortgage decreased to 3.49% from 3.58% the week prior. Compared to last year at 4.54%, rates are now more than a full percentage point lower and the lowest it has been since nearly 3 years. Unfortunately, the eight-month drop in mortgage rates are sparking much more refinance activity than home buying.

Mortgage applications decrease from the week prior: Mortgage loan applications decreased 3.1% from one week earlier, despite continued decline in mortgage interest rates. While the refinance index decreased by 7% from a week prior, it remains 152% higher than it was this same time last year. Purchase applications on the other hand, inched up 1% from the previous week and 5% from last year, giving hints that consumers do want to take advantage of the low rates environment, but current market volatility and economic uncertainty are impacting their buying decisions.


Past Market Minutes

August 26, 2019 - New home sales fall in July, U.S. leading economic indicator index increased in July
August 19, 2019 - Home sales perk up in July, job growth, and mortgage rates drop 
August 12, 2019 - California Q2 Affordability improved from last year, job openings dip, significant drop in mortgage rates
August 5, 2019 - National pending home sales up, Fed cuts interest rates, mortgage applications down
July 29, 2019 - Home sales dip in June, slow economic growth in Q2
July 22, 2019 - California real estate market slows down, labor market remains strong, consumers remain confident and mortgage rates inch up
July 15, 2019 - Updated forecast, consumer price index up, and flat mortgage rates

For previous weeks visit our archive folder.


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