The Weekly Rap! Friday Sept 27th, 2013

The National Debt is currently: $16,954,381,376,237.00

The Dow last traded at 15,253.  The S&P 500 is trading at 1,691.  Gold is trading at $1,338 an ounce, while oil futures at $102.63 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.70/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 2.61%.  30-year Treasury Bond yields last traded at 3.69%.  Rates on 30-year fixed-rate mortgages are a hair above 4.5% this week. MBS yields are interest rates at which banks sell their loans into Fannie Mae and Freddie Mac bond programs. Rising yields mean higher consumer-mortgage rates.

The FNMA 30-year fixed 3.5% coupon, containing 3.75% – 4.125% mortgages, pretty much the benchmark or how rate sheets are priced these days  is currently trading at 98.90.  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.  The higher the number (price), the better the rate.

In economic news this week; the reader’s digest version is it was a relatively lackluster week in the economic news category an economy that continues to limp along an anemic growth rates.

An index of national activity turned positive in August, indicating above-trend growth, according to data released by the Chicago Fed Monday. The national activity index rose to +0.14 from -0.43 in July, while the three-month moving average edged up to -0.18 from -0.24 in July. The index is a weighted average of 85 different economic indicators, and when the three-month average is below -0.7 there’s an increasing chance a recession has begun.

Orders for durable goods rose 0.1% in August after a revised 8.1% drop in July as demand for autos surged, but other key segments of the U.S. manufacturing sector were mixed.  Companies are still investing at a slow to moderate pace, helped by low interest rates.

The U.S. economy grew at 2.5% in the second quarter, according to the government’s third and final review of gross domestic product.  U.S. growth is projected to slow to a rate of 1.9% in the third quarter.  We need to see growth at least 4.00% and more like 6.5% consistently before we really see any improvement in employment and real growth.

Consumers opened up their wallets in August and spent more in July than previously reported, but the pace of growth in the U.S. remained on the softer side. Consumer spending rose 0.3% last month, marking the third-fastest increase of the year if only by a slight amount. Yet the rise in spending is no sure sign that the economy is gaining momentum. Consumers aren’t the big spenders they used to be in the days before the Great Recession slammed into the United States.  Over the past year spending has climbed only 3.7%, about half the rate compared to periods of stronger economic growth.  Consumer spending represents as much as 70% of the U.S. economy and is the biggest influence on growth.

A big wild card is the latest budget standoff in Washington. A government shutdown or, worse, a default on the nation’s debt, could undermine the economy once again.  We experienced a short but sharp slowdown during the last major budget brouhaha in the summer of 2011.

On the Real Estate front:  Sales contracts on homes fell 1.6% in August, a third month of declines, led by drops in three of four U.S. regions, according to data released Thursday by the National Association of Realtors. NAR cited higher interest rates and prices, among other factors. “Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead,” said Lawrence Yun, NAR’s chief economist. Despite the recent drop, the pending-home sales gauge in August was up 5.8% from the year-earlier period. Here in the West we fell 106%.

Home prices with a Conventional loan (the FHFA index is calculated from mortgages owned by Fannie Mae and Freddie Mac) rose 1.0% in July, the 18th straight monthly rise. The, was up 8.8% from the same period of July 2012, and is now 9.6% below its April 2007 peak. Separately, the S&P/Case-Shiller 20-city composite rose 12.4% in the year to July 2013

On the employment front:  The number of new applications for unemployment benefits fell by 5,000 to 305,000 in the week ended Sept. 21.  The average of new claims over the past month, a more reliable gauge than the volatile weekly number, dropped by 7,000 to 308,000. That’s the lowest level since June 2007.  Continuing claims, or people continuing to receive benefits, increased by 35,000.  This indicates we are still not out of the woods yet by any means.

The Fed’s quarterly “Financial Accounts of the United States” report, which provides a snapshot of the finances of U.S. households and corporations and the government, shows that Americans are gradually rebuilding their wealth after the recession. Households’ net worth rose about 6% in the first two quarters of 2013.  Stock prices and real-estate values have advanced since then, with the S&P 500 index up 5% since the end of the second quarter.  But is this real?  The reason for the advance in the stock market and real estate (due to lower interest rates) is because the Fed is pumping so much money (85 BILLION per month) into the financial system artificially keeping borrowing rates at a minimum.  I’m afraid to thing of what happens when they stop.

Please visit my website at: http://bill.bartok.stanfordloans.com/agents/Blog

Sincerely,

Bill Bartok

Mortgage Advisor

NMLS# 445991

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