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Mortgage rates reached new record-lows again this past week. Between low rates and sagging prices, it has never been more affordable to buy a new home. The only problem is finding qualified buyers who aren’t already stuck in a home. Favorable affordability trends have thus far not been able to prolong demand in the housing market since the expiration of the federal homebuyer tax credit. The National Association of Realtors’ Pending Home Sales Index for May showed activity plunging after the tax credit expired.
Equity markets have rallied in trading so far this week despite a mediocre June employment report before the long holiday weekend last week. June was the first month this year that the U.S. economy experienced a drop in payrolls. Total non-farm employment fell by 125,000 payrolls in June. However, the losses were exacerbated by a drop of 225,000 temporary Census payrolls last month while employment in the private sector increased by 83,000. The unemployment rate declined to 9.5% in June, due to a shrinking labor force and not because of stronger hiring.
While stocks have been up in recent days, equity prices have been on a gradual decline for the past several months. The broader S&P 500 index fell to its lowest close in 10 months last Thursday before rebounding this week. Based on early afternoon trading today, the S&P 500 index is up 4% for the week. Optimism surrounding a strong second quarter for corporate earnings along with a drop in initial unemployment claims the past week has fueled buying activity. Whether this is just a short-term bounce before testing new lows or the beginning of a longer-term bullish trend is yet to be seen. Second quarter earnings results will be the main market mover in the coming weeks.
The Economy
In the week ending July 3, first-time jobless claims fell by 21,000, from the previous week, slightly more than expected, to a seasonally-adjusted figure of 454,000. While encouraging, the jobless claims figure remains stubbornly high.
Total non-farm employment for the U.S. fell by 125,000 payrolls in June. This was the first month this year that payrolls have declined. A large drop in temporary Census positions was the main drag in June’s employment report. Currently, non-seasonally adjusted total non-farm employment shows a figure of 131,456,000, a decline of 0.05% from June 2009.
Despite the drop in payrolls last month, the unemployment rate continued to improve. The U.S. unemployment rate fell to 9.5% in June from 9.7% in May. This is the second straight month that the unemployment rate has declined and the lowest it has been since July of last year, although it is so far primarily due to a shrinkage in the size of the labor force.
Housing Market
The National Association of Realtors’ Pending Home Sales Index plunged to a reading of 77.6 in May from 110.9 in April. The index is also significantly lower from the same year-ago period when it stood at 92.3. The expiration of the federal homebuyer tax credit at the end of April caused the plunge in sales activity for May.
National average mortgage rates declined again from the previous week to a new all-time low of 4.57% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on July 8th. This is the third straight week that rates have declined and also the third straight week that the 30-year fixed rate mortgage hit new all-time lows.
In the week ending July 2nd, the MBA’s seasonally-adjusted purchase index declined 2.03% from the previous week and was down 40.97% compared to the same time last year. This is the third straight week that the purchase index has declined. It is also the steepest year-over-year drop in the purchase index since February 2009. The purchase index has also posted declines in eight out of the past nine weeks following the expiration of the federal homebuyer tax credit.
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