Interest rates rose further this week after the minutes of The Federal Reserve’s July meeting were released. In the minutes the Fed, which has discussed drawing down their Treasury Bond and mortgage securities purchases, suggested that they would begin tapering down those purchases in September. The Federal Reserve has been purchasing $85 billion per month of Treasury Bonds and mortgage securities. This program known as QE3 (quantitative easing) was put in place to lower interest rates, and add liquidity to the economy in order to increase economic growth and lower unemployment. In May the Fed signaled that the economy was growing at a rate substantial enough to end these programs. That statement caused long term interest rates to rise a full percentage point in the month of May. This rise was so steep the Fed began to make statements to calm the markets. Rather than ending the program they announce that they would begin drawing down purchases at some point and slowly end this program over time. Rates are up about 1 1/2% since the initial announcement May 1. Ironically, the Fed is still purchasing the $85 billion worth of treasuries and mortgages monthly. If they begin to taper these purchases in September that will be the first month that they have actually pulled back. It is thought that much of the increase in rates is already built into the market and the initial drawbacks should not result in another quick rise in rates. Interest rates are expected to rise, but much more gradually than over the last 75 days.
The Freddie Mac Weekly Primary Mortgage Market Survey showed the 30-year fixed rate up strongly from last week at 4.58% compared to last week’s 4.40% while the 15-year jumped to 3.66% from 3.44% last week. This is the highest rates have been since July 2011. This time last year the survey showed a 30-year fixed rate of 3.66% and a 15-year fixed rate of 2.89%. High balance conforming rates are just under 5% for 30 year fixed and close to 4% for 15 year fixed rate loans. Jumbo rates are about 5.25 for 30 year fixed and 4.5 for 15 year fixed.
Fears of higher interest rates have caused the stock markets to drop further this week. This week the Dow fell below 15, 000 for the first time since July 3 but closed out at week at 15,010.36 down -.47% from last week’s 15,081.47 close. The NASDAQ was shut down yesterday for 3 hours due to a computer malfunction which really infuriated investors but rallied today to finish at 3,657.79 up 1.53% from last week’s close of 3,602.78. The S&P 500 eked out a small gain up .46% to 1,663.50 from last week’s close of 1,655.83.
The 10-year treasury note ended the week with a 2.9% yield rate after hitting a two-year high of 2.936 percent on Thursday. Responding to the uptick in the rate Barclays has raised its 10-year Treasury yield forecast to 3.1% by the end of this year and 3.75% by the third quarter of 2014. It had previously forecast a rate of 2.9% by mid-2014.
We have seen a pickup in open escrows! We are also seeing more homes that are sitting on the market and not selling. Many of these seem to be priced ok compared to the very highest comp, but as prices begin to flatten they must be too high.
Los Angeles County’s unemployment rate rose to 9.9% in July up from 9.7% in June. The jobless rate was down from 10.6% in July 2012. Statewide, the rate for July was 8.7% and nationwide it was 7.4%. Los Angeles County the biggest payroll jobs gainer was the entertainment industry, up nearly 8,000 jobs while the hospitality sector gained roughly 4,500 jobs in July, and the retail sector was up nearly 4,000 jobs.
Equity sales are on the rise in California. C.A.R. reports that the share of equity home sales continued to grow in July, increasing on a monthly basis for 17 of the last 18 months. Distressed sales plunged and are down 50% to a year ago.
July was a huge month for home re-sales nationwide according to the National Association of Realtors. Data showed that sales in July went up to a seasonally adjusted annual rate of 5.39 million meaning that housing sales across the nation are approaching a healthy level for the first time since November 2009. Sales were up 6.5% from a 5.06 million pace in June and rose 17.2% over the past year. Sales have now stayed above an annual pace of five million for three straight months, something which hasn’t happened since 2007. First-time homebuyers continue to be seen in smaller numbers than normal, they were only 29% of the market in July (40% is the number associated with a healthy market). Much of this is their inability to get offers accepted due to cash sales by investors.
July new home sales declined nationally by 13% which was the largest month to month decline since 2010. This was attributed to very low supply of new construction as builders are having difficulty finding land and getting permits and approvals quickly enough to meet demand. Remember they pretty much stopped looking for property and building from 2008 to 2011.
If you’d like more information on the San Fernando Valley or Los Angeles, or to have help looking for your next home, please feel free to reach out! I’m happy to help, no obligation.