NAAAM Real Estate

U.S. mortgage applications rose 1.1% for the week ended July 6, the Mortgage Bankers Association reported July 11. Applications were 10.5% above their year-ago level.

Meanwhile, the National Association of Realtors (NAR) said on July 11 that it expects existing-home sales to rise to nearly 6.4 million units in 2008, up from the 2007 estimate of more than 6.1 million. Nearly 6.5 million existing homes were sold in 2006, NAR said.

As for new homes, NAR projected sales of 865,000 in 2007, and 878,000 next year, but the 2008 projection would still be down more than 20% compared with the nearly 1.1 million new homes sold in 2006.

Consumer borrowing rose at an annual rate of 6.4% in May, far above the small 1.1% gain in April and double what analysts had forecast, the Federal Reserve reported July 9. According to David Wyss, chief economist at Standard & Poor’s, some of the credit card surge reflects the fact that tightening bank standards are making home equity loans harder to obtain and home values are not soaring as they did during the housing boom.

Addressing a National Bureau of Economic Research conference on July 10, Federal Reserve Chairman Ben Bernanke noted that Americans’ expectations about inflation play an important role for Federal Reserve policy makers in their efforts to tame inflation. His talk dimmed hopes for a reduction in the Fed’s key interest rate, which has held steady at 5.25% for just over a year.

This week look for updates on the Producer Price Index on July 17 and the Consumer Price Index on July 18.

The nation’s service economy expanded at a faster-than-expected pace in June, as the Institute for Supply Management (ISM) said on July 5 that its index of business activity in the non-manufacturing sector registered 60.7, topping May’s reading of 59.7 and Wall Street’s forecast of 58.1. A reading above 50 indicates expansion, while one below 50 signals contraction. The June reading was the highest since April 2006, when it hit 61.1.

Output at U.S. factories, plants and utilities also expanded in June, the ISM reported July 2. The ISM’s manufacturing index rose to 56 in June, above the May reading of 55, and higher than the market expectation of 55.4. The reading marked the fifth consecutive month of growth for the manufacturing sector.

Late payments on home equity loans — payments that are 30 days or more past due — rose to 2.15% in the first quarter of this year, up sharply from 1.92% in the final quarter of 2006, the American Bankers Association (ABA) reported July 3. On a brighter note, the ABA also reported that late payments on credit card bills dropped to 4.41% in the first quarter, down from 4.56% in the fourth quarter of 2006, the best showing in nearly a year.

The average rate for a 30-year, fixed-rate mortgage fell to a one-month low, Freddie Mac said July 5. Rates have ebbed in recent weeks as investors’ fears concerning inflation have eased.

Sales of new single-family homes fell 1.6% in May, far better than the 6.2% decline Wall Street had anticipated, the Commerce Department said June 26. The median price of a new home fell 0.9% to $236,100 in May, down from $238,200 in May 2006.

Existing home sales fell 0.3% in May to 5.99 million units, the slowest sales pace in four years, the National Association of Realtors said June 25. The median price of an existing home was $223,700, down 2.1% from a year earlier, marking the 10th straight month that the price has shown a year-over-year decline.

Construction spending in May climbed 0.9%, the largest jump in nearly 18 months, and well above Wall Street’s expectation of a 0.1% rise, the Commerce Department reported June 29. Spending on residential construction, however, fell 0.8% to an annually adjusted rate of $549 billion, the 15th consecutive monthly decrease.

Orders to U.S. factories for big-ticket manufactured goods — expected to last three or more years — dropped by 2.8% in May, the largest amount in four months, and a far bigger slide than the 1% decline economists had forecast, the Commerce Department said June 27. A 22.7% plunge in commercial aircraft orders paced the decline.

Meanwhile, consumer spending in May rose by 0.5% for the second month in a row, the Commerce Department said on June 29. Incomes, which fuel spending, rebounded in May by 0.4%, after falling 0.2% in April.

Employers added a net gain of 88,000 jobs to their payrolls in April, down from the 177,000 net increase in March and below Wall Street’s forecast of a 100,000 net gain, the Labor Department reported May 4. April’s job growth was the weakest since November 2004, when there was a gain of only 65,000 jobs. The unemployment rate edged up to 4.5% in April from the 4.4% reading in March.

U.S. business productivity — a measure of how much any given worker can produce in an hour — grew a greater-than-expected 1.7% in the first quarter of 2007. Economists expected a rise of only 1%. Meanwhile, unit labor costs grew 0.6% in the first quarter of 2007, well below the 4% rise analysts predicted.

The Institute of Supply Management (ISM) reported May 3 that its April index of manufacturing activity moved to 54.7, from 50.9 in March. Readings above 50 point to expansion in the economy. Forecasters expected the April index to hit 51.

The ISM also said its non-manufacturing index rose to 56 in April from 52.4 in March, beating Wall Street expectations for a reading of 53. The service sector represents about 80% of U.S. economic activity.

The National Association of Realtors’ Pending Home Sales Index fell 4.9% in March, following a 1.1% increase in February, the trade group reported May 1. Economists had predicted a 0.4% rise in the index.

Mortgage rates for the week ended May 4 remained unchanged on signs of weakening consumer spending and cooling inflation, Freddie Mac said.

The unemployment rate in March fell to 4.4%, matching a five-year low, the Labor Department reported April 6. Employers boosted their payrolls by 180,000 workers in March, the most since December. The figures suggest that companies are not feeling a need to restrict hiring in an economy that has otherwise shown signs of sluggishness. New orders placed with U.S. factories rose by 1% in February, the Commerce Department said April 4. Economists were expecting a bigger 1.9% increase. Despite the lackluster showing, February’s performance was a sharp improvement from the 5.7% plunge in new orders reported in January. Meanwhile, the Institute for Supply Management (ISM) said its manufacturing index slipped to 50.9 in March, smaller than February’s reading of 52.3 and Wall Street’s expectation of 51. Any reading larger than 50 indicates growth for the sector. Similarly, growth in the nation’s service sector slowed, as the ISM’s service sector index fell to 52.4 in March from February’s 54.3 reading. The index also fell short of the 54.7 reading analysts had predicted. For the week ending April 5, interest rates on 30-year mortgages nudged up, but still hovered close to their low for the year.

Consumer spending rose 0.6% in February, the best showing since a 0.7% jump in December, the Commerce Department reported March 30. The gain was double what analysts had expected, which should help alleviate recession fears fueled by a slump in housing and the domestic auto industry.

Personal income also was up 0.6% in February, which followed a 1% surge in January. Even with the rise in income, the savings rate remained at a negative 1.2% in February, the 23rd consecutive month the savings rate has been in negative territory.

Sales of new homes dropped 3.9% in February to a seasonally adjusted annual rate of 848,000 units, the slowest pace in nearly seven years, the Commerce Department said March 26. Meanwhile, the median price of a new home fell to $250,000 in February, down 0.3% from a year ago.

Orders to factories for durable goods — big-ticket items expected to last three or more years — increased 2.5% in February. Even with the rebound from January’s 9.3% drop, the gain was smaller than the 3.5% gain expected by Wall Street.

On March 30, oil prices reached $66.55 a barrel on the New York Mercantile Exchange, the highest level in six months. Concern over rising gasoline prices helped undermine consumer confidence, as the Conference Board’s Consumer Confidence Index fell from 111.2 in February to 107.2 in March. The March index was the lowest since November when the reading was 105.3.

Sales of existing homes unexpectedly rose by 3.9% in February, the largest monthly gain in three years, the National Association of Realtors reported March 23. The price of a median home sold last month dropped to $212,800, down by 1.3% from the same month in 2006, marking a record seven straight months that the median home price has fallen.

Construction of new homes and apartments rose 9% in February to a seasonally adjusted annual rate of 1.53 million units, the Commerce Department reported March 20. Construction had fallen by 14.3% in January. Even with the better-than-expected rebound, construction activity remained 28.5% below last year’s level.

Builders’ applications for new permits, considered a reliable gauge of future activity, continued falling in February, dropping by 2.5% to an annual rate of 1.53 million units. That marked the 12th decline in the past 13 months in building permits.

Federal Reserve policymakers announced on March 21 that they would leave the central bank’s key federal funds rate — the rate that banks charge one another for overnight loans — at 5.25%, where it has remained since June 2006.

The Conference Board’s Composite Index of Leading Economic Indicators slipped 0.5% in February. The drop, while expected, was the steepest since February 2006. The index is important because it often foreshadows the performance of the economy over the next six to nine months.

The nation’s unemployment rate dipped to 4.5% in February, as employers added 97,000 jobs to their payrolls, close to economists’ forecast for a gain of approximately 100,000, the Labor Department reported March 9. Unemployment fell despite bad winter weather that forced construction companies to slash 62,000 jobs, the most since 1991.

The Labor Department also reported that the number of laid-off workers filing unemployment claims fell by 10,000 for the week ended March 2. The decline provided a break from a recent rise in layoffs stemming from a weakness in the housing and auto sectors.

Former Federal Reserve Chairman Alan Greenspan said there was a “one-third probability” of recession in the United States this year, according to a March 6 interview with Bloomberg news service. His comments contrasted with those of current Federal Reserve Chairman Ben Bernanke, who said that the Federal Reserve continues to foresee “moderate growth going forward.”

The nation’s trade deficit narrowed slightly to $59.1 billion in January, down 3.8% from a December deficit of $61.5 billion. Exports of goods and services rose by 1.1% to an all-time high of $126.7 billion in January, reflecting gains in sales of airplanes, computers and farm products.

Rates on 30-year mortgages fell to their lowest level since mid-December, as investors moved to the safety of bonds after last week’s stock market turmoil. Typically, more money flowing into the bond market makes more money available for mortgage lending.