Interested in what’s going on in the economic markets?  Here’s your weekly installment of Syd Leibovitch’s market update.

U.S. retail sales move higher; consumer spirits rise. U.S. retail sales rose broadly in August and consumer sentiment hit a 14-month high in September, supporting expectations for sturdy economic growth in the third quarter. The data on Friday helped ease concerns about soft consumer spending, which had lagged other fairly upbeat economic data covering manufacturing, services and housing. Several big Wall Street firms bumped up their GDP growth forecasts on the news. The Commerce Department said retail sales, which account for a third of consumer spending, increased 0.6 percent last month after an upwardly revised 0.3 percent gain in July, as Americans stepped up purchases of automobiles and a range of other goods. The only decline was at gasoline stations, but that reflected declining prices at the pump that should free up income to support spending in the months ahead. In a sign of underlying strength, so-called core sales increased 0.4 percent in August. Core retail sales exclude purchases of automobiles, gasoline, building materials and food services, and correspond most closely with the consumer spending component of gross domestic product.U.S. Treasury debt prices fell, while the dollar held near a six-year high against the yen on the data. U.S. stocks were trading lower as a new round of U.S. sanctions against Russia hit energy shares. August’s increase in core retail sales followed an upwardly revised 0.4 percent gain in July that helped put them 4.1 percent above their year-ago level. While that remains below a pre-recession pace of about 5.5 percent, it nevertheless bodes well for economic growth.

Economists said it was not clear whether the recent raft of positive data would prompt the Federal Reserve next week to signal it was moving a bit closer to raising interest rates. The Fed, which meets on Tuesday and Wednesday, has said it would likely wait a “considerable time” after ending a bond-buying program in October before hiking rates from near zero. “Retail sales were still somewhat weaker in the third quarter and recent labor market indicators have been somewhat less encouraging in August and September,” said Scott Anderson, chief economist at Bank of the West in San Francisco.

Average Mortgage Rates Rise Slightly this week, still near year lows. Average U.S. mortgage rates rose slightly this week but still remained near their lows for the year. Mortgage company Freddie Mac said Thursday the nationwide average for a 30-year loan edged up to 4.12% from 4.10% last week, where it had stayed for three straight weeks. The average for a 15-year mortgage, a popular choice for people who are refinancing, rose to 3.26% from 3.24%.At 4.12%, the rate on a 30-year mortgage is down from 4.53% at the start of the year. Rates have fallen even though the Federal Reserve has been trimming its monthly mortgage and bond purchases, which are intended to keep long-term borrowing rates low.

The average rate for a standard 30-year fixed loan with a 20% down payment has not been above 4.15% since mid-June. Mortgage professionals said solid borrowers who are willing to pay 1% of the loan amount in upfront discount points can lock in 30-year fixed rates for less than 4%. The low rates and higher home prices have made it easier for some homeowners who missed the sub-4% rates in 2012 and early 2013 to refinance their home loans now. Of the new applications for mortgages last week, 57% were for refinance loans — the highest level since March, according to the Mortgage Bankers Assn. Today’s rates are about 4.25% as rates have risen this week.

The benchmark 10 year treasury bond yield closed the week at 2.62% up from 2.48% last Friday and 2.35% two weeks ago on August 29, 2014. It’s the highest level in 2 months.The recent rise in bond yields was bolstered Friday by a report showing that U.S. retail sales rose faster last month than economists forecast. That reinforced expectations that the Federal Reserve may start hiking interest rates sooner than expected. The central bank has nearly finished winding down its stimulus program and policy makers start a two-day meeting on Tuesday. The yield on the 10-year Treasury note has now climbed for seven straight days.

Stocks decline amid interest rate worries. Higher interest rates mean higher cost on debt which lowers profits.The Dow fell 61.49 points today and closed this week at 16,987.51, down from last Friday’s close of  17,137.36.  The S&P closed lower this week at 1,985.54, down from last Friday’s close of 2,007.71. The Nasdaq closed down 24.21 points today. It closed the week at 4,567.60 slightly down from last Friday’s close of 4,582.90.

Banks Sweeten Jumbo Terms to Woo Borrowers. Instead of selling mortgages on the secondary market, large lenders are keeping them on their books and reaping the profits. That may lead to better terms for borrowers. The secondary market for jumbo mortgages—in which banks bundle and sell their mortgages as consolidated debt to investors—is doing worse than a year ago. But that may be good for borrowers, at least for now.

Only 2.3% of all jumbo mortgages originated in the first half of 2014 have been securitized, according to Inside Mortgage Finance, an industry newsletter. That’s a drop in the bucket compared with the peak of 49.3% in 2005. Now, instead of selling mortgages on the secondary market, large lenders are keeping them on their books and reaping the profits themselves. What’s more, lenders that don’t want to hold on to their mortgages are finding national and regional banks are eager to buy them, says Mathew Carson, a broker with First Capital Group in San Francisco.

A healthy secondary market will be necessary to sustain jumbo lending in the long run, especially as interest rates go up, the housing market fully recovers and the mortgage market grows to more normal dollar volume. The jumbo market right now is much smaller than pre-recession. Jumbo mortgage dollar volume was just $103 billion in the first six months of 2014, compared with $332 billion in the first six months of 2003, the biggest mortgage lending year on record, according to Inside Mortgage Finance.

Foreclosure Filings Rise Monthly, But Fall Annually. The number of foreclosure filings in the nation has increased month-over-month but declined year-over-year, according to RealtyTrac‘s monthly U.S. Foreclosure Market Report for August 2014 released today.The RealtyTrac data showed that one in every 1,126 houses in the nation (a total of 116,193 properties) had a foreclosure filing during August. This number represented an increase of 7 percent from July but a decrease of 9 percent from August 2013. Foreclosure filings include default notices, scheduled auctions, and bank repossessions.

The number of foreclosure auctions scheduled in August increased by 1 percent year-over-year after 44 consecutive months of annual declines, according to RealtyTrac. Month-over-month, scheduled auctions declined by 1 percent in August. In judicial states, where the foreclosure process must pass through the courts, scheduled auctions increased by 5 percent year-over-year. In all, 51,192 foreclosure auctions were scheduled nationwide in August.

For the second consecutive month, foreclosure starts increased month-over-month, making a 12 percent jump from July to August, according to RealtyTrac. The number stayed flat year-over-year, however. The foreclosure process started on more than 55,000 properties in August nationwide. REO activity fell by 33 percent annually in August, marking the 21st consecutive month with a year-over-year decline in nationwide REO activity, according toRealtyTrac. REO activity did inch upward by 2 percent from July to August, however. In all, foreclosure led to the repossession of 26,343 properties by lenders in August.

GLOBAL MARKETS-Dollar heads for best run of gains in 17 years. The U.S. dollar headed for its ninth straight week of gains on Friday, some measure of how the economic fortunes of the United States and its major economic peers are diverging after six years of financial turmoil. A broad rise for the greenback was the main bet of most major investment houses this year but it has taken a very long run of relatively good U.S. numbers and a surge in concern over European and Japanese growth for the currency to deliver. Investors are convinced a Federal Reserve meeting next Wednesday will rubber-stamp a shift towards higher interest rates in 2015, as suggested by research from the U.S. central bank this week. That drove benchmark 10-year U.S. Treasury yields to their highest in over a month on Friday, while European stocks shrugged off weakness in Asia to inch higher. A 2 percent rise on the week took the U.S. currency to a six-year high of 107.39 yen. Against the euro it gained 0.2 percent on the week and was broadly flat on the day at 1.2921.

We are seeing an increase of activity. I have heard from many Rodeo agents that homes that were not selling got offers and sold in the last week.  Interest rates have begun to rise and are now about 1/8% above their lows just a couple of weeks ago. This will probably start a new round of articles about higher rates and rates increasing further. This could motivate some people to buy before rates go up!

Have a great weekend!
Syd


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