Housing/Real Estate Market 

CAR releases 2020 forecast: Low mortgage interest rates will support California’s housing market in 2020 but economic uncertainty and affordability issues will mute sales growth. Still, CAR’s updated forecast has a less pessimistic outlook for both sales and prices than in 2018.

Construction spending up 0.1% in August: After a revised flat reading in July, construction spending increased slightly in August to a seasonally adjusted annual rate of $1.29 trillion. Much of the gain came from residential construction spending which rose 0.9.

Macro Economy

Unemployment rate falls to 50 year low: At 3.5% in September, the U.S. labor market is at its lowest level of unemployment in modern history. However, rising uncertainty combined with fewer workers to bring in off of the sidelines have kept new job creation subdued. Overall, the economy added just 136,000 jobs last month. This is consistent with other indicators suggesting slower, but modest growth ahead.

U.S. manufacturers displayed the biggest contraction since 2009: ISM reported that American manufacturers experienced the worst month since 2007-2009 Great Recession as the index fell from 49.1% in August to 47.8% in September. In fact, this is the index’s sixth consecutive drop of which the last two, have been in contractionary territory below 50%, signaling that business conditions are getting worse.

Service sector points to slower growth ahead: The ISM Index for non-manufacturing dropped to a 3-year low in September, which suggests that the economy will grow more sluggishly during the 3^rd quarter as services represent nearly two-thirds of all consumer spending. It is important to note that the index remains in expansion territory with a reading above 50, so it still indicates expansion, just at a slower pace.

Trade deficit widens in August: More imported goods drove the trade deficit higher last month. Although exports have been growing for two consecutive months, the increase has paled in comparison to the jump in imported goods, which rose by $1.3 billion in August. Some of this is likely due to the iPhone 11 effect, which began shipping during the month, but still represents a drag on overall economic growth nonetheless.    

Real Estate Finance

Mortgage rates inch up: The 30-year fixed-rate mortgage (FRM) increased, but barely, to 3.65% from 3.64% the week prior. With the fed lowering rates and worries about a slowing U.S. economy, the outlook for rates remains flat-to-down as treasuries have become relatively more attractive to equities as a result of uncertainty because bond prices will have upward pressure as investors seek safety, which means downward pressure on rates.

Mortgage applications bounce back: As rates dipped back down, mortgage applications increased by 8.1% last week. As expected, much of this jump was associated with refinance applications, which were up 14% last week. Unfortunately, new purchase applications only rose 1%, which is consistent with the lackluster response of the market to near historic lows in rates.

Past Market Minutes
September 30, 2019 - home building activity soars 12%, consumer confidence sinks to 3-month low
September 23, 2019 - Home sales get a boost from low interest rates, weekly jobless claims inch up
September 16, 2019 - LA rents growing slower than national rents, mortgage applications increase
September 9, 2019 - Pending home sales fall, consumer spending surges, trade deficit dips

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