Week of November 15–November 19, 2010

Produced by NAR Research

Weekly Economic ForecastIndicator Updated

ForecastPast Week’s Forecast

Directional Shift

GDP 2010 Q4: 2.4% 2.6% ↓

GDP 2011 Q1: 2.6% 2.5% ↑

GDP 2011 Q2: 2.3% 2.3% ↔

Unemployment rate by mid-2011:

9.4% 9.4% ↔

Average 30-year fixed mortgage rate by mid-2011:

5.0% 4.9% ↑

NAR's monthly official forecast as of November 5

Produced by NAR Research

Monday, 11/15/10 • Retail sales increased in October

by 1.2% on a seasonally adjusted basis. This follows a 0.7% increase in September.

• Growth in retail sales was primarily attributable to automobiles, which increased by 5.7% in October. Although retail sales have been steadily increasing since early 2009, home purchases, such as furniture and other furnishings, have been flat over that same time frame.

• The 10 Year Treasury Note traded at 2.85% early this morning. This was 13 basis points higher than Friday’s close of 2.76% and 37 bps higher than its most recent nadir of 2.84% set in early November.

• The 10 Year Treasury Note and the 30 Year mortgage rate are highly correlated. An increase in the treasury rate suggests higher mortgage rates.

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Tuesday, 11/16/10 • Inflation signals remain

somewhat mixed.  While producer price inflation was up 0.4 percent in October for finished goods and up 4.3 percent for the year ending in October, core inflation, the index that excludes food and energy prices, was down 0.6 percent in October and up only 1.5 percent for the year.  These readings were lower than anticipated. 

• Higher growth of the indexes for immediate and crude goods, suggest that continued growth in finished prices is on the horizon.  The producer price of finished consumer durable goods, items like cars, home appliances, consumer electronics, and furniture, fell 1.4 percent in October but were 0.4 percent higher over the year ending that month.  This price growth could eventually lead to higher prices for consumers.

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Tuesday, 11/16/10 (cont’d)

• At the same time, overall industrial production was flat in October.  Gains in manufacturing production were offset by a retreat in utilities due to warmer weather and a lower need for heat.  Business equipment production grew substantially while consumer good production was flat after two months of decline.  Consumer good production growth grew at a 10-year record level in May.

• Capacity utilization, a measure of how much productive capability is being used, was flat in October.  When capacity utilization is high, prices of the resources used tend to rise.  When capacity utilization is low, this slack in the economy can cause prices to fall.  At a rate 6.6 percentage points above the low in June 2009 and 5.8 percentage points below its average from 1972 to 2009, capacity utilization does not point toward inflation.

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Wednesday, 11/17/10 • Mortgage purchase applications were

down 5.0 percent for the week ending November 12th. Purchase applications do not take into consideration cash buyers who according to the September REALTORS® Confidence Index make up as much as 29 percent of transactions.

• Mortgage purchase applications were down 12.0 percent from the same week a year ago.

• Refinances, which made up 80.3 percent of mortgage activity, fell 16.5 percent as mortgage rates climbed 18-basis points to 4.46 percent on a 30-year fixed mortgage.

• Housing starts fell 11.7 percent in October from the previous month to a seasonally adjusted 519,000 starts on an annual basis. Starts are off 1.9 percent from the previous year.

• Multifamily homes were the primary cause of the drop as single family structures were down just 1.1 percent from September.

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Wednesday, 11/17/10 (cont’d)

• Consumer prices were relatively tame, moving up 1.2 percent from September.

• Core inflation, which excludes food and energy, was unchanged.

• The housing component of the CPI rose 0.1 percent in October.

• The weakness in the CPI helps justify recent quantitative easing measures by the Federal Reserve as it combats potential deflationary pressures.

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Thursday, 11/18/10 • Figures for unemployment

insurance claims for the week ending November 13th were released this norming. Jobless claims registered 439,000, while last week’s figures were revised upward by 2,000.

• Continuing claims for unemployment insurance fell 48,000 to 4.295 million and the 4-week average is down 133,000 compared to last month.

• New claims for unemployment insurance fell sharply two weeks ago and have held steady. This trend is important for the economy as it suggests that employers are hiring. Improved employment will help confidence and consumer demand in turn, which the economy desperately needs to get back on track. Improved confidence and employment should also help spur home sales in both the short-term and long-term.

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Friday, 11/19/10 • MBA’s National Delinquency

Survey for 3rd quarter shows some improvements among mortgage delinquencies. The delinquency rate decreased to 9.13 percent of all loans outstanding, which is a 72 basis points drop from the quarter before, and a 51 basis points drop from one year ago. The delinquency rate includes all first-liens with missed payments but not those in the process of foreclosure. The rate of seriously delinquent loans, 90+ days late or in the foreclosure process, also dropped from the previous quarter and from the third quarter of last year.

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Friday, 11/19/10 (cont’d) • Foreclosure inventory was down as

well. The percentage of loans on which foreclosure actions were started during the third quarter was up, suggesting some clearing of the augmented 90+ delinquency inventory. The combined share of loans in foreclosure or at least one missed payment was 13.78 percent on a non-seasonally adjusted basis, a 19 basis point drop from 13.97 percent last quarter. There are still 1.9 million of loans in the foreclosure inventory that need to be worked through, which is very high. Hence, distressed sales will continue to be with us throughout 2011. 

• Separately, FHA’s Fannie and Freddie loans originated since 2009 and 2010 have performed very well, with a lower default rate than in pre-bubble years.  The current distressed mortgages are loans mostly originated during the ‘good times’ of 2005 and 2006, and not recently originated mortgages. 

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