Joined Feb 3, 2009
1,759 Blog Posts
New Home Sales:Prior 352k / Mkt Expects 360k / Actual 324k…Basically Down 0.6%…Median Home Price @$220K vs. $229K… Plus A Podcast From Jeff Hoffman A Retail Liquidator
Durable Goods: Prior 1.9% / Mkt Expects -0.9% / Actual +1.8%
Mortgage Applications Climb From a 7 Month Low
Comments »By Lynn Adler
NEW YORK (Reuters) – U.S. mortgage applications climbed last week from a seven-month low, the Mortgage Bankers Association said on Wednesday, adding to emerging signs that the three-year housing market collapse may be abating.
Demand for home loans rose after four straight weekly declines, as U.S. mortgage rates dipped and more borrowers applied to buy houses as well as refinance.
The trade group’s seasonally adjusted mortgage applications index, which includes both purchase and refinance loans, rose 6.6 percent to 548.2 in the week ended June 19. This modest rise is from the lowest level since late November.
“In terms of home sales and building activity, we’ve probably reached a bottom,” Keith Hembre, chief economist at First American Funds in Minneapolis, Minnesota said on Tuesday. “But it’s highly unlikely there will be a sharp recovery from here.”
Existing home sales rose in May for the first back-to-back gain since September 2005, the National Association of Realtors said on Tuesday.
The average 30-year loan rate dipped 0.06 point to 5.44 percent last week, nearly a full percentage point less than a year earlier.
A rate spike from a record low 4.61 percent in March to 5.57 percent in early June, however, has crushed a burgeoning refinance boom.
With rates starting to ease again, some borrowers may be rushing to lock in now rather than chance a renewed surge in borrowing costs.
The Mortgage Bankers Association said its refinancing index rose 5.9 percent from a seven-month low to 2,116.3 last week. Demand for refinancing was at least triple this level in March when mortgage rates hit their record lows, the group said.
On Monday, the MBA slashed its forecast by more than 25 percent for total mortgage loan origination in 2009, mostly due to fewer refinancings and a slow start to the federal Home Affordable Refinance Program.
A plodding upturn in home purchases has been dominated by first-time buyers taking advantage of a federal tax credit and distressed prices on foreclosures.
The mortgage purchase index increased 7.3 percent to 280.3, the highest since early April, the MBA said.
“I’ve seen for the last several months a flattening of the market, which candidly is close to euphoria if you’re a new home builder given how bad it has been,” Richard Dugas, chief executive of No. 2 U.S. home builder Pulte Homes, said this week at the Reuters Global Real Estate Summit in New York.
Mortgage rates are still “incredibly good” despite rising from historic lows, he noted.
The greater deterrents are the longest recession since the Great Depression and the highest unemployment rate in more than 26 years, most economists agree.
OECD Raises Economic Outlook
Shrink 4.1% this year & grow 0.7% next year….woohooo
Comments »By Sandrine Rastello
June 24 (Bloomberg) — The Organization for Economic Cooperation and Development raised its forecast for the economy of its 30 member nations for the first time in two years as the U.S. slump shows signs of easing.
The combined economy of the world’s most-industrialized countries will shrink 4.1 percent this year and grow 0.7 percent in 2010, the Paris-based group, which was founded in 1961 to coordinate international economic policies, said today. The new projections compare with March forecasts for contractions of 4.3 percent and 0.1 percent.
The improved outlook conflicts with that of the World Bank, which this week said the global recession will be deeper than it predicted three months ago. In anticipating a weak recovery staggered across different economies, the OECD signaled that the Federal Reserve and Bank of Japan should not raise interest rates before 2011 and recommended the European Central Bank cut its benchmark further.
“Economic activity in the OECD countries is reaching bottom,” OECD Secretary General Angel Gurria told reporters in Paris. “We foresee a recovery that will be rather slow and fragile for some time.”
Stocks and U.S. futures gained on the forecast of expansion next year, while the yen and dollar weakened against higher- yielding currencies such as the Australian dollar and pound.
U.S. Lead
The U.S. economy was largely responsible for the OECD’s prediction that the global recession will reach its bottom in the second half of this year. The world’s largest economy will contract 2.8 percent this year and grow 0.9 percent next year, the organization said in revising its forecast from declines of 4 percent in 2009 and zero growth in 2010.
“Signs have multiplied that U.S. activity could bottom out in the course of the second half of this year,” Jorgen Elmeskov, the OECD’s acting chief economist, said. A sluggish recovery suggests the Fed does not need to begin raising its key interest rate from close to zero until 2011, the organization said.
The moderating U.S. slide will help offset weakness elsewhere as the OECD cut its 2009 predictions for Europe and Japan, while raising them for next year. Japan’s economy will shrink 6.8 percent this year rather than the 6.6 percent envisaged in March, before growing 0.7 percent in 2010 instead of shrinking 0.5 percent, the organization said.
Deflation in Japan
Even as Japan’s slump shows signs of nearing its end, a slow rebound and excess capacity are “likely to further entrench” deflation, Elmeskov said. The organization said the Bank of Japan should better communicate its intention to keep its main interest rate low and hold it at 0.1 percent beyond next year.
In the 16-nation euro-area, signs of a recovery are not as clear, the OECD said, as it cut its 2009 forecast to show a contraction of 4.8 percent compared with 4.1 percent in March. Even though it no longer anticipates a 0.3 percent decline next year, it still predicts stagnation as rising unemployment makes consumers reluctant to spend.
That “grim outlook” and falling inflation mean the ECB should start “exhausting the remaining scope” for cutting its benchmark rate from 1 percent, the OECD said.
The OECD’s new outlook comes two days after the World Bank said the global economy will contract 2.9 percent this year, compared with a previous forecast of a 1.7 percent decline. Today’s report echoes the view of the International Monetary Fund which now forecasts worldwide growth next year of 2.4 percent, up from April’s 1.9 percent estimate.
Brazil, India
The organization said evidence of a recovery in China, which is not a member of the OECD, was already apparent, with the economy expected to grow 7.7 percent this year and 9.3 percent in 2010. The OECD previously projected expansions of 6.3 percent and 8.5 percent respectively. The government still has room to spend on social programs, the OECD said.
The Brazilian economy will shrink 0.8 percent this year, more than the 0.3 percent forecast in March, before growing 4 percent next year, up from a 3.8 percent estimate, the OECD said. The organization also raised growth predictions for India to 5.9 percent and 7.2 percent this year and next.
Such emerging market recoveries mean trade will soon stabilize and begin to pick up by the end of the year, the OECD said. It predicted global trade will expand 2.1 percent next year after plunging 16 percent this year.
‘More Balanced’
While risks to the forecasts are “more balanced” than before, the recovery is unlikely to be strong enough to reverse rising unemployment, the OECD said. It projected joblessness in its economy will average 9.9 percent at the end of next year, topping 10 percent in the U.S. and reaching 12 percent in the euro-area.
That will contain inflation, which it expects to average 0.6 percent this year and 0.8 percent in 2010, compared with 3.2 percent last year, it said. The central banks of Canada and Switzerland and the U.K. were also advised to maintain interest rates near zero.
Threats to the recovery include another deterioration in the financial system, especially if deflation takes hold, rising bond yields as government budget deficits surge and a retrenchment by consumers amid job cuts, the OECD said. While its report assumed the price of oil would average $65 a barrel, an increase to $85 would cut growth 0.5 percentage point next year.
Unconventional Policies
To encourage the rebound, central banks should maintain unconventional policies such as buying assets until growth is assured and the financial system has normalized, the OECD said. They should consider pledging to maintain loose monetary policy until certain criteria are fulfilled, it said.
Governments that can ease fiscal policy further should do so, the OECD said, identifying Germany, Canada and Switzerland. By contrast, it said debt in Japan, Italy, Ireland, Greece and Iceland prevented further fiscal stimulus. The OECD projected an average budget deficit of 8.8 percent of gross domestic product next year, up from 3.2 percent in 2008, with gaps in the U.S., the U.K., Spain and Ireland exceeding that level.
Governments should also run stress tests on banks, whose balance sheets remain “hazy,” the OECD said. The tests should be “seen as challenging, be made public and be associated with demands for recapitalization where needed.” Governments in Europe have so far resisted following the U.S. in subjecting individual banks to public examinations.
Policy makers should prepare to reverse crisis policies when the economy and markets return to normal, the OECD said. For central banks, the “timing and calibration” of withdrawing liquidity “will be tricky,” it said.
The ECB Lends $621 Billion To The Banking System
Comments »By Gabi Thesing
June 24 (Bloomberg) — The European Central Bank said it will lend banks 442 billion euros ($621 billion) for 12 months, the most it has ever allotted in an auction, as it steps up efforts to unblock credit markets in the 16-nation euro region.
The Frankfurt-based ECB filled all bids in its first offer of 12-month loans to banks at the current benchmark interest rate of 1 percent. The 1,121 banks that participated receive the funds tomorrow. The euro interbank offered rate, or Euribor, for 12-month loans fell to 1.57 percent today, a record low.
“It’s even more than our most optimistic scenario would have suggested,” said Christoph Rieger, a fixed income strategist at Commerzbank AG in Frankfurt. “There is so much liquidity around that it will push money-market rates to new record lows.”
The ECB, battling Europe’s worst recession since World War II, is concentrating its efforts on lubricating the banking system, which accounts for about three quarters of company financing in the region. The central bank has cut interest rates to the lowest on record and will next month start buying 60 billion euros of covered bonds to help free up credit.
Today’s allotment is “broadly equivalent to one third of all sovereign issuance in the euro zone this year,” said Erik Nielsen, chief European economist at Goldman Sachs Group Inc. in London. “It’s a big number, providing the intended monetary easing by stealth. I suspect that the ECB is very pleased.”
‘Awash With Liquidity’
The ECB has been lending banks as much money as they want against eligible collateral for up to six months since October last year. It announced in May it would extend the maximum maturity on its loans to 12 months. Today’s is the first of three auctions planned for this year, with the others to be held on Sept. 29 and Dec. 15.
“For the other two the ECB could potentially decide to add a small spread” to the fixed rate, said Elga Bartsch, chief European economist at Morgan Stanley in London. “The market finds itself awash with liquidity and the Eonia overnight rate is likely drift lower.”
The central bank expects the euro-region economy to shrink about 4.6 percent this year before returning to growth by the middle of 2010. Loans to the private sector declined for a third straight month in May as banks tightened lending standards and demand for credit wilted.
‘No Guarantee’
“While the ECB’s liquidity support to euro-zone banks sounds the right thing to do, as bank lending is by far the most important source of financing for euro-zone non-financial firms, there is no guarantee that banks will use this extra liquidity to lend to the broader economy,” said Daniele Antonucci, an economist at Capital Economics Ltd. in London.
The Organization for Economic Cooperation and Development said today the ECB should quickly cut interest rates toward zero and commit to keeping them there for as long as needed to revive the economy.
While President Jean-Claude Trichet has not closed the door to further reductions, Germany’s Axel Weber said yesterday the bank has used up its room for rate cuts and Austria’s Ewald Nowotny said in a June 19 interview that borrowing costs are likely to remain at their current level into 2010.
“If financial institutions judge that interest rates are now likely to have troughed in the euro area, this operation represents possibly the final opportunity to obtain 12-month funding at just 1 percent,” said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London.
Weber said yesterday he expects the 12-month loans to “lead to a further narrowing of spreads” on longer-term market interest rates. Demand for shorter-term ECB loans may wane as a result of the new auction, he said.
The ECB’s allotment of 7-day loans to banks yesterday fell to the lowest amount since Lehman Brothers Holdings Inc. filed for bankruptcy nine months ago.
