By Fred Arnold
Without much fanfare the stock market has resumed its climb into record territory. Twice this week the stock market hit record highs. The main driver for the continued rise is investors feeling comfortable that the Fed is still quite a ways off from tapering the economic stimulus program. American companies are as lean as they have ever been and flush with cash ready to make investments as needed for growth. A good example is I flew to BostonSunday for a speaking engagement for The Credit Union Executive Society to help CU mortgage professions create Word Class Mortgage divisions in their credit unions and noted the plane both too and from Boston were full. Airlines along with most American businesses are running tight ships with expenses and operations.
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The week started out with a surprisingly disappointing retail sales report. Where analysts were expecting a .8% rise in the report, they were surprised to see that the net movement actually declined .1%. Despite the fact of increased auto sales and gasoline purchases, it was not enough to put the retail sales figures in positive territory. It appears that consumers, at least for the short term, are retreating from making purchases far beyond what are essential needs. We are also deep into the time of year where many families take vacation. It is not unusual for there to be a lull in sales during vacation time and prior to back to school purchases.
Inflation continues to be a non-issue on the consumer level. Prices for consumers did jump more than expected when you factor in the recent jump in energy prices, however when you take out volatile energy movements, the core inflation rate held steady at .2% which is in line with expectations. This is also the same pace as May. In the coming months we may see inflation creeping up if energy prices continue to rise. I never understood why they took out food and energy prices? Don't you have to pay real dollars out of you pocket when you go to the market and gas station? Would they not average out in the long run if they kept it in?
Fear of another potential housing bubble is beginning to surface, I don't think so. The pace in which home prices are rising has more and more economists concerned that we are headed down the same path as before in which prices will rise too fast and create another housing mess. The one factor that is different this time around with rapidly rising home values is that buyers purchasing homes today are either very qualified when it comes to obtaining their mortgage, or they are purchasing with cash. In addition, housing affordability is at an all time high with low rates, stable wages and reasonable home values.
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The housing crisis in 2008 was fueled by rapid home price increases combined with many borrowers who had little or no means to pay their mortgage when rates increased because many buyers acquired homes without having to provide any proof of income. In today2019s market is actually illegal to issue mortgages without verifying a borrower's ability to repay the debt. The standards for qualifying are much higher than in the past which provides more protection from borrower defaults.
Market moving reports for next week are:
Monday July 22 - Existing Home Sales
Tuesday July 23 - FHFA House Price Index
Wednesday July 24 - MBA Applications and New Home Sales
Thursday July 25 - First Time Jobless Claims and Durable Goods Orders
Friday July 26 - Consumer Sentiment
As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate information. I welcome the opportunity to serve you in any way I possibly can. Please feel free to reach me at 661-505-4300 .