FOCUS ISSUE FOR THE WEEK: The economy continues to be weak signaled most by the increase in the rate of unemployment—the most politically charged economic statistic. Housing is not lifting the economy from its doldrums despite record low interest rates. Obama’s economic policies failed to pull us out of the recession despite their very high cost. Voters are getting restive and will likely vote in a Republican dominated House in November.

MORTGAGE MARKET SUMMARY: For the week there were 11 positive trends offset by 9 negative trends. The DJIA rose to 10,447 from 10,150 last week. Mortgage lenders are having difficulty hiring enough people to meet growing demand for refis so are fattening their margins to reduce their waiting lists. The biggest single issue for the mortgage industry continues to be difficulty in managing the flood of new regulations.

Positive Trends

• The 30 year fixed rate mortgage fell again to an all-time low of 4.32% from 4.36% last week.

• Consumer spending rose 0.4% in July the sharpest increase since March. After adjustment for rising prices, spending grew 0.2%. In June consumer spending was flat. Consumer incomes rose 0.2% in July. This suggests there will not be a double dip in the second half of this year. PCE prices rose 0.1%. July’s increase means consumer spending growth at a 2% annual pace in third quarter.

• Fed Reserve Chairman Bernanke said the U.S. economy will resume moderate growth in 2011 after a sluggish second half this year. The biggest worry in the world economy is the heavy burden of debt weighing on most of the governments around the world.

• The Euro zone grew at a 3.9% annualized rate in second quarter. For the year 2010, the pace looks like 1.5%, which is higher than the 1% rate we were forecasting. Most of the growth stems from Germany. Greece and Spain have the lowest growth rates

• The Case Shiller index of home prices rose 0.14% seasonally adjusted in June from May. This was the 13th consecutive increase since it reached a floor in May 2009. The index is now up 5% from that floor. There were strong increases in Washington, DC, New York, Minneapolis, Detroit, and Chicago offset by declines in Seattle, Las Vegas, Charlotte, Phoenix, San Diego, San Francisco, Denver, Tampa, Dallas, Portland, and Boston. The biggest challenge is the 12.5 month overhang of unsold inventory on the market versus a normal inventory of 6 months. We expect to see prices declining in the fall by 5%.

• Consumer confidence measured by the Conference Board rose more than expected in August to 53.5, up from 51.0 in July. The consensus of forecasters was 51 in August.

• The Obama administration is considering tax cuts to boost the lagging economy. These include a $30 billion small business lending bill, a payroll tax cut for businesses and individuals, and extending the Bush tax cuts that are set to expire at yearend.

• The ISM index rose to 56.3 in August, up slightly from 55.5 in July. This was higher than expected. Usually this index tracks the Chicago PMI which declined.

• Initial claims for unemployment fell last week slightly to 472,000 from 478,000 the prior week. Continuing claims also fell two weeks ago to 4,456,000 from 4,479,000 the prior week.

• Pending home sales rose 5.2% in July from -2.8% in June.

• Factory orders in July increased 0.1%, up from -0.6% in June.

Negative Trends

• The rate of unemployment rose to 9.6% in August from 9.5% in July. The average workweek remained unchanged from July at 34.2 hours. Private payrolls rose by 67,000 jobs but total nonfarm payrolls in August fell by 54,000 positions, the same decline as in July, as the government laid off temporary Census workers. Average hourly earnings rose 0.3%, up from 0.2% in July. The increase in private payrolls was stronger than expected but still shows a very slow growing economy. The so-called underemployment rate, which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking, increased to 16.7% from 16.5%.

• The Chicago Purchasing Managers Index fell in August to 56.7, down from 62.3 in July. This is slightly lower than expected by the consensus of forecasters.

• According to ADP, total employment fell by 10,000 in August, compared to a 37,000 gain in July.

• The Federal Reserve admitted that it will take at least five years for the rate of unemployment to return to its normal level of 5%.

• The FDIC announced that there are 829 banks on its problem list at the end of June, up from 775 at the end of March. The total number of banks in the U.S. continued to decline. There were 104 fewer banks at the end of June than at the end of March. For the first time in 38 years, no new banks were added to the list of 7,800 banks.

• Construction spending fell 1.0% in July after declining 0.8% in June.

• Car sales in August fell to 997,978, down 5% from the July rate of 1,050,503. This rate was down 21% from 1,262,197 a year ago. The annualized selling rate in August was 11.47 million vehicles, down from the 16 million rate we experienced through most of the current decade.

• The ten year Treasury rose to 2.70% from 2.64% last week.

• Labor productivity fell -1.8% in second quarter 2010, revised from -0.9% in the first report. Unit labor costs rose 1.1% in 2Q from 0.2% in the earlier report.

Conclusion: Mortgage rates are expected to remain low for the next several quarters which means total mortgage originations in 2011 are likely to be higher than earlier expected—around $1.3 trillion.
Originator Demographic Survey: Access Mortgage Research has launched a project to support mortgage brokers and bankers. The first step of this project is to measure the size and activity of current and former mortgage brokers and mortgage bankers. A second step is to reduce the challenges of delivering loans to multiple investors and thereby increase loan pull-through rates.
Future meetings run by Access Mortgage Research:
18th Benchmark Study Meeting for the Retail and Consumer Direct Channel – September, 28-30, 2010 in Milwaukee.
18th Benchmark Study Meeting for the Broker Channel – November 2010 in Phoenix.
Access Mortgage Research was founded in 1991 to provide research to the mortgage industry. We do customized reports from databases of mortgage lenders. For more details see www.accessmrc.com or phone 410-772-1161