By Fred Arnold
Despite the challenging economic times, I have something this week to report that I am a little bit optimistic about relating to housing but let’s get though the other stuff first!
Let’s see what happens this week with interest rates and the stock market. After interest rates hit new lows, rates will most likely react in opposite direction of the stock market this week. This past week the stock market has been dropping consistently for the last 5 weeks, with last week being exceptionally rough. The DOW at the start of May was 12,807. By the end of May it had dropped to 12,292 (A 515 point drop) and as of the end of this week, will be down another estimated 300 points. (Ouch!)
Why is this happening?
Believe it or not, the problem is not just a U.S. issue. Concerns over the last few weeks about the European Debt Crisis have resurfaced. (I thought we were past all this) When you combine the debt crisis with signs that the recovery is slowing in the U.S. and around the world, it can create significant concern about the future of corporate profits (end of the business cycle as discussed in past weeks). When investors are concerned about profits, they take their money out of the stock market and put it into government securities and bonds. This is what has been driving down mortgage rates.
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Mortgage rates are once again approaching the 4% range for a 30 year fixed rate loan. Now despite these low rates, we have yet to see positive movement in home purchases. It seems that many homebuyers continue to remain on the sidelines because of concerns about employment as well as the continuing reports of declining home values.
Ok, I know you are asking yourself, "What is the potential good news that I mentioned earlier?"
You may remember that I wrote not long ago that I found it disturbing that despite the fact that mortgage rates are very low, home affordability is the highest it has ever been, and home prices are where they were 10 years ago, the media was not reporting it, or at least not making a big deal about it. Well...things are changing...
In the past week The Wall Street Journal, and many other major radio and TV media outlets have finally started talking about just how affordable housing has become. It seems like all are finally recognizing that although there are many challenges that remain related to housing such as foreclosures, short sales, etc... there is now significant opportunity for many home buyers to get into a home at an amazingly affordable price with a very low mortgage rate. (The first major step to changing homebuyer and homeowner psychology about homeownership is for the media to talk about opportunity)
Economic Reports on tap for this week:
o Tuesday June 14th - Producer Price Index & Retail Sales
o Wednesday June 15th - Consumer Price Index, Industrial Production and Housing Market Index
o Thursday June 16th - Housing Starts & First Time Jobless Claims
o Friday June 17th - Consumer Sentiment
Have a great week!
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