With interest rates closing out at the lowest levels in over a year this past week, I’m sure everyone is clammoring for an update from Syd Leibovitch on what’s going on in the economic markets.  And I’d certainly hate to keep you waiting – so here you go!

Interest rates dropped slightly this week to the lowest levels in over one year as demand for mortgage securities increased.  This demand comes from investors feeling that mortgage securities may not return a high yield, but are considered very safe. Mortgages initiated in the past few years have historically low default rates. Higher qualifying standards are credited for this, but I would credit a low default rate to rising prices. The Freddie Mac Weekly Primary Mortgage Market Survey  showed that the 30 year fixed rate fell slightly to 4.13% down from 4.15% last week and 4.48% one year ago. The 15 year fixed was 3.23%, one year ago it was 3.52%. We are seeing rates on all loan amounts in the 4.125% to 4.25% range for 30 year terms and around 3.375% for 15 year fixed.
 
The 10 year Treasury note yield ended the week at 2.50%, down from last week’s 2.53%. It was 2.56% one year ago.

The Dow closed at  17,100.18. It was up 0.92% from last weeks close of 16,943.81. The Nasdaq had another strong week, closing at 4432.15, up 0.38% from last weeks close of 4415.49.  The S&P 500 closed at 1,978.22, up 0.54% from last weeks close. The markets began the week rising to record highs as corporate profits exceeded expectations. Thursday after it was reported that a Malaysia Airlines jet crashed the markets dropped sharply, especially Boeing stock. The markets, and Boeing stocks, recovered slightly later Thursday, and closed up Friday 123.37 when it was reported that the plane was actually shot down.

Citigroup settled their toxic mortgage securities case with the Justice Department for $7 billion.  This agreement is the latest in the federal government’s effort to hold companies accountable that made subprime loans, pooled and packaged them into bonds, and sold those bonds to investors. These bonds, many of which were rated AAA (the highest rating for the safest investments) turned out to be worthless, or close to it. Thus earning the name toxic assets, as those who held them had such losses that many banks, investment companies, investors and even governments became insolvent. This led to the largest government bailout in history, as banks, investment firms and even companies were considered “too big to fail”.

Bank of America  settled its case with AIG for $650 million this week. AIG had sued Bank of America for fraud on credit default swaps (insurance against losses on mortgage securities). Bank of America also offered $13 billion to settle with the Justice Department. The Justice Department’s latest demand is $17 billion. Both turned down each other’s offers. Bank of America reported legal expenses for the second quarter of $4 billion, drastically exceeding the estimated $471 million that was set aside. Their stock dropped as a result.

The Federal Reserve released its Beige Book report of anecdotal information on business activity collected from contacts across the nation. The fed reported that 5 of its 12 districts described the pace of growth as “moderate,” with the remaining districts viewing the expansion as “modest.”  “Most districts were optimistic about the outlook for growth,” the Fed said. The report, compiled by the Federal Reserve Bank of Kansas City from data collected before July 7, fits in with employment, manufacturing and other data that have pointed to strong growth in the second quarter and buoyed the economy’s prospects for the remainder of this year. Output contracted sharply in the first three months of the year as the economy was slammed by bad weather, a slow pace of inventory accumulation and the end of long-term unemployment benefits. The Beige Book found that consumer spending had increased in recent weeks in most districts, with automobiles dominating sales growth. Manufacturing continued to improve in all districts, with growth occurring across many sub-sectors, according to the report.

The positive economic news, high earnings, and gains in employment have left economists wondering why the Fed has not risen short term interest rates and why they are continuing to purchase Treasury bonds and mortgage securities under the QE3 program. These economists fear that waiting too long could lead to high inflation. The Fed has reduced their purchases of Treasury bonds and mortgages each month and plan to no longer purchase Treasuries or mortgages after October 2014, but plan on leaving short term rates at or near 0% until mid-2015.

California’s unemployment rate fell in June to 7.4% down from 9% last June! The state added more than 24,000 jobs in June, and more than 356,000 jobs over the last year, according to the U.S Bureau of Labor Statistics. The unemployment rate in Los Angeles County in June fell to 8.2% from 10.3% last year.

DataQuick reported that California home sales slumped last month from a year earlier as buyers faced tight supply and prices continued to rise. There were 39,254 homes and condominiums sold in June.  That was up 4 percent from May, a typical seasonal rise, but it was nearly 20 percent below the average for all Junes since 1988. In fact, DataQuick said sales haven’t topped the average for any particular month in more than eight years. The median price paid for a home in June was $393,000, up 1.8% from May and up 11.6% from June 2013.  It was the highest median price for any month since December 2007, although well below the peak of $484,000 set in spring 2007, By comparison, the median price dipped to $221,000 in April 2009 after the housing crash. Low inventory has equated to lower sales. One reason for low inventory is low interest rates. With these historically low rates it has been much easier for people to buy new homes without selling their current homes. We have seen record numbers of people become landlords. One thing for sure, these people are going to create great wealth for themselves! I hope you are all out there investing in real estate for your future!

Have a great weekend!
Syd


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