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Market Minute - August 19, 2019

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Housing/Real Estate Market 

California home sales perk up in July for first time in more than a year: California’s real estate market got a jump start from the lowest mortgage interest rates in nearly 3 years and helped sales rebound from June by 5.6%, and sales marked its first yearly gain in 15 months of 1.1%. While it’s encouraging that home sales crept higher, the market continues to be challenged by affordability due to the high median price which although it pulled back from June, it increased form same time last year by 2.8%.

Home builder confidence inched up by a single point: The NAHB reported a slight improvement of 1 point in the confidence of home builders in August. Although August’s reading at 66 still signals a solid confidence, the index remains below levels seen a year ago and suggest that builders may be growing more concerned about the housing market’s future.

Housing starts slip 4% in July, but building permits climb: New residential construction fell 4% to a seasonally adjusted rate of 1.19 million and is barely holding on ahead of last year by 0.6%. Meanwhile, building permits rose in July a healthy 8.4% from June to a rate of 1.34 million, which is also 1.5% above last year.

Macro Economy

California posted more job growth in July: 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.

U.S. budget deficit widens as spending surges: The U.S. government’s July budget deficit widened to $120 billion, which is up from $77 billion last year, mainly due to a 22% increase in spending on military programs. The government’s budget gap is now 27% wider than the first 10 months of last year’s fiscal year, with overall spending up by 8% while receipts have grown by only 3%.

Despite obvious signs of economic slowdown, small businesses have positive expectations: The small business optimism index rose 1.4 points to 104.7 as companies continue to generate output, create value, and expand the economy even in the face of possible signs of a recession. Small businesses want to expand and while they struggle to find qualified workers, they grew their expectations for business conditions and reported a lower uncertainty index.

American households paid more in July for goods and services, but inflation still mild: While Americans had to deal with higher gas prices, rent increases and a higher cost of living, CPI rose slightly by 0.3% and wasn’t enough to push inflation over the top. In fact, inflation grew at 1.8% which is below Fed’s target rate of 2% and well below last year’s peak of 2.9%.

Consumers spending more than enough to keep economy growing: Despite concerns about the economy, retail sales had the biggest increase in last 4 months as it increased by 0.7%. Excluding auto dealers and gas stations, sales rose an even stronger 0.9%, which was mainly driven by a soaring 2.8% increase in sales at internet retailers. The steady pace of consumer spending is a reassuring sign for U.S. economy in the face of imminent slowdown.

U.S. productivity increased in Q2: While U.S. labor productivity rose a healthy 2.3% annual clip in the second quarter of 2019, it slowed just a bit from a revised 3.5% gain in the first 3 months of the year. The result of productivity in Q2 came as a result of 1.9% increase in output and a decrease of 0.4% in hours worked. Overall, productivity has increased at a 1.8% pace year-over-year, which is the biggest gain in 4 years.

U.S. industrial production slumps in July: While June’s output was revised to a 0.2% gain, industrial production fell 0.2% in July, marking the second drop in the past four months. Although industrial output is still up on a year-over-year basis by 0.5%, the factory sector is clinging on as July data combined with renewed trade tensions aren’t helping the growth of this sector.

Business inventories a potential drag on growth: business inventories remain unchanged in June, meaning that inventory accumulation is not likely to add much upward revision to the Q2 GDP numbers released last month. In fact, Q2 growth will likely be revised lower as both inventories and housing starts finished the quarter weaker than anticipated.

Jobless claims rise unexpectedly: Despite historically low levels of unemployment, the number of workers filing for unemployment rose last week and the previous week was revised higher as well. That said, job growth remains relatively strong so we should be cautious about over-interpreting this small rise until it is sustained for several weeks.

Real Estate Finance

Mortgage rates dropped significantly: The 30-year fixed-rate mortgage fell to 3.60% from 3.75% the week prior. The interest rates for a mortgage are now hovering around a full percentage point lower than they were a year ago, making it cheaper and more attractive to borrow for a similarly priced home.

Mortgage applications increased 5.3% from a week earlier: The number of mortgage loan applications increased 5.3% on a seasonally adjusted basis from a week prior, mainly led by a surge in the number of refinance applications which went up by 12% and 116% from a year ago. The purchase index however saw another slight decrease of 2% when compared the week prior. Despite lower rates, high home prices are likely still preventing would-be buyers form entering the market.

Housing delinquencies still low: the number of mortgages behind on their monthly payment remains at a 20-year low as rising prices have helped more homeowners regain lost equity and labor markets remain relatively tight. This is the 17th consecutive month of annual declines in the housing delinquency rate.

FHA brings back Condo spot approvals: FHA-backed mortgages on condos could become slightly easier to obtain as the FHAS recently announced rules bringing back spot approvals for qualifying condo complexes.

Past Market Minutes

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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