Mortgage Update
Economic Update
Strong retail sales, especially in the automotive industry, helped boost non-manufacturing activity in June at a faster than expected pace, data from the Institute for Supply Management showed. The index of business activity in the non-manufacturing sector rose to 62.2 last month, up from 58.5 in May. The index was above the 58.9 analysts were expecting. It was the 27th consecutive month of expansion. A reading of 50 or above means the services sector of the economy is expanding, while a reading below 50 indicates a contraction. Only two of the 14 industries tracked in the June study reported decreased activity from the prior month — health services and agriculture. Legal services reported the same rate of activity.
Fed Watch
Federal Reserve policy makers raised the benchmark U.S. interest rate a quarter point to 3.25 percent and restated a plan to carry out further increases at a “measured” pace. “The stance of monetary policy remains accommodative,” the Federal Open Market Committee said in a statement after a two-day meeting in Washington last week. “With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.” Retaining the “measured” language suggests the FOMC is concerned that low long-term interest rates outside its direct control are still stimulating the economy, requiring central bankers to keep raising their overnight bank lending rate to keeping the expansion from stoking faster inflation. Last week’s rate increase was the ninth in as many meetings. All 22 of Wall Street’s biggest bond trading firms, the so-called primary dealers in government debt that trade directly with the Fed, predicted an increase to 3.25 percent, according to a Bloomberg News survey. Eighteen predict the Fed will raise its target rate to at least 3.75 percent by year-end.
Real Estate Watch
The Pending Home Sales Index, the leading indicator for the housing market, slipped from near-record levels but remains historically high, according to the National Association of Realtors. The Pending Home Sales Index, based on data collected for May, stands at 124.9, which is 2.0 percent below April but 3.7 percent above May 2004. April’s downwardly revised reading of 127.5 was second only to a record of 128.1 in October 2004. The index is based on pending sales of existing homes, including single-family and condos; a sale is pending when the contract has been signed but the transaction has not closed. Pending home sales typically close within one or two months of signing. David Lereah, NAR’s chief economist, said the index shows robust home sales can be expected for June and July. “Pending home sales are at the third highest on record, so we’re looking at a banner year for the housing market,” he said. “To put the index in perspective, we’re running about 25 percentage points higher than what is considered to be historically strong.”
Sources: Associated Press, Bloomberg, National Association of Realtors
Compiled by Donald Ster, Homebanc,dster@homebanc.com
