Archive for July, 2013

Mortgage Rates Rise Again, But Won’t Spoil The Housing Recovery

Freddie Mac said the average 30-year fixed mortgage rate rose to 4.51% last week, from 4.29%, but while that might worry some buyers looking for a home, it can actually be viewed as an important positive signal.

“Increases in rates would not be occurring if there wasn’t economic growth, says Steve Blitz chief economist at ITG Investment Research. “If people thought the economy was heading south, even with absence of quantitative easing, the rates wouldn’t rise.” remember that rates are still at historic lows. In fact, for every $100,000 in a loan, an increase of 100 basis points only adds $50 to each monthly payment.
“If that makes a difference, you probably can’t afford the home,” says Blitz.

While a slow and steady rise in mortgage rates isn’t expected to stifle demand for housing, the environment makes it less attractive for existing home owners to refinance to lower rates. Over the last several quarters, banks have benefited from the uptick in refinances, but the closing and bank charges that accompany a refinancing may not offer consumers much of a reason to refinance.

Although regional banks such as US Bancorp USB +1.37%, Zions Bancorporation and Fifth Third Bancorp FITB +0.91% could feel the pinch from lower refinancing volume, Blitz doesn’t see this as a major concern: “New mortgages, as opposed to refinancing, could grow a lot faster and offset any loss in the refinancing business,” he says.

Plus, the steepening 10-year Treasury curve over the past month gives banks an even greater incentive to lend money. “This results in more profit on the loans, which is a very powerful force for bank earnings.”

Aside from banks, home builders are on the receiving end of the housing market rebound, even though stock prices have been choppy.
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Washington unemployment jumps to 5.6 percent falling modestly in April, the unemployment rate in the Washington area rose sharply in May, even as most metro areas experienced declines.
The Labor Department’s Bureau of Labor Statistics puts this region’s May unemployment rate at 5.6 percent, up from 5.0 percent in April and higher than the 5.1 percent jobless rate in May 2012.
But the Washington area’s unemployment rate is still among the lowest for cities with a population of more than a million, behind only Salt Lake City, Minneapolis, Oklahoma City and Seattle.
Unemployment rates fell in 253 of nation’s 372 metropolitan areas. The rate rose in 86 and wasunchanged in 33.
Among all cities and towns, the worst unemployment rate in the nation is Yuma, Ariz., at 30.8 percent in May. Bismarck, N.D. remains the city with the lowest unemployment rate, at 2.4 percent.
Among big cities, Minneapolis’s 4.7 percent jobless rate is the lowest. Memphis, at 9.5 percent, had the highest big-city unemployment rate in May.
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Construction Spending in U.S. Rises, Led by Residential Projects

Construction spending in the U.S. climbed in May, led by the strongest expenditures on residential projects in more than four years.
Outlays (CNSTTMOM) grew by 0.5 percent to an $874.9 billion annualized rate, the Commerce Department reported today in Washington. The median forecast of 53 economists surveyed by Bloomberg called for a 0.6 percent rise. Spending on housing climbed to the highest level since October 2008.

A pickup in residential real estate is helping to offset weakness in non-residential construction, giving economic growth a lift. Public works also picked up in May, led by gains at the state and local level that indicate improving municipal budgets are making up with weakness at the federal level created by across-the-board budget cuts known as sequestration that began in March.
“You’re going to see a stronger trend as homebuilding continues to pick up,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “If we get much better job growth, it would help to support a longer-term trend of growth in construction.”
Estimates in the Bloomberg survey ranged from a drop of 0.1 percent to a 1.8 percent gain. April’s reading was revised to a 0.1 percent advance from the initial estimate of a 0.4 percent gain.
Today’s report contained revisions back to January 2011. The combined effects was to lift the level of spending in April from an $860.8 billion annual pace to $870.3 billion, or a 1.1 percent increase.
12-Month Gain
Construction spending increased 6.2 percent in the 12 months ended in May before adjusting for seasonal variations.
Housing outlays climbed 1.2 percent to a $322.3 billion annualized pace. Private non-residential projects dropped by 1.4 percent to the lowest level since February 2012.
Gauges of housing growth have been positive. Sales of new properties advanced in May to a 476,000 home annualized pace, the highest level in almost five years, the Commerce Department reported.
Improvements in spending driven by housing would help companies including 3M Co. (MMM) The St. Paul, Minnesota-based maker of Scotch tape also sells home and construction products and is expected a pickup in business as homeowners become more active.
“We also have a very good construction, home improvement business which clearly will benefit and is benefiting from things when people are renovating their home,” David Meline, the company’s chief financial officer, said in a June 12 presentation. “Consumer business looks quite good for us.”
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