So how are the markets recouping from the recent government upheaval?  Here is Syd Leibovitch explaining all that’s happened out there for the past week.

Interest rates are back down and look like they will stay down at least until early next year. The reason for this is because they were down due to the QE3 Stimulus Program in which the Federal Reserve is purchasing $85 Billion per month in treasury bonds and mortgage securities in order to drive long term interest rates down. It was announced by the Fed Chairman in May that the economy was heating up and that they were working on a plan to begin drawing down these bond and mortgage purchases in order to end the program in 2014. It was later announced that these draw backs would begin in September. At the September Fed meeting it was decided not to begin the drawdown in fear that the economy may slow because Congress was threatening to allow the government to shut down, and not approve an increase in the US debt ceiling, which could cause a default on US debt, unless the Affordable Care Act was repealed or delayed. As you know the government was later shut down for 16 days. That cost the economy an estimated $25 billion. The debt ceiling was raised at just after midnight on the morning that the US would have been out of funds to pay its debts. Unfortunately, the government funding is only up to January 15, 2014 and the debt ceiling is only increased up to February 7, 2014. This was done in order to give the Congress, Senate and White House time to negotiate a deal. This uncertainty over another possible shutdown, and default date, as well as the damage to the economy over the October shutdown has the Federal Reserve reversing course on ending stimulus. Expect the stimulus to be in place at least until the government is funded and the debt limit is increased for a more permanent period of time.

Rates today are around : 4% for 30 years conforming and 3.25% for 15 years conforming, 4.25% for high balance conforming 30 year, and 3.375 for 15 year high balance conforming, and 4.5 for Jumbo 30 year and 3.625% for 15 year jumbo.

The Freddie Mac Weekly Primary Mortgage Market Survey showed the 30-year fixed rate  dipped back down again to 4.13% from last week’s 4.28%. The 15-year rate also fell to 3.24% from  3.33% in the previous week.  A year ago this week according to the survey, the 30-year rate was at 3.41% while the 15-year rate was at 2.72%.  Both averages are the lowest they have been since June 20th.

The much-delayed September’s jobs reports showed that employers added 148,000 non-farm jobs and the unemployment rate fell to 7.2% down from 7.3%. Economists had been expecting a jobs number closer to 180,000. The report is based on data before the government shutdown, we will need to wait for the October report in order to gauge the impact of the shutdown. Jobs in construction increased by 20,000 in September after little change over the past six months. Both the labor force participation rate (63.2%) and the employment-population ratio (58.6%) remain unchanged. The report also revised the August report from 169,000 jobs to 193,000 jobs and the overall unemployment rate fell to 7.2% from 7.3%. One troubling piece of the report is that it shows that young people aren’t getting more jobs. Around 75% of 25-34 year-olds were employed in September 2013, about the same as last year. Those without jobs are often living at home and that is impacting household formation and the amount of first-time home buyers who are entering the housing market. October’s report will be due out on November 8.

Construction spending in August hit a 4 year high up 7.1% from last August. It was led by private residential building.  This may be because developers are finding it hard to find land and are working through the long process of getting the land they have entitled for the subdivisions they want to build.

Notice of defaults in California, the first filing in a foreclosure ( foreclosure starts) dropped 58.6% in the third quarter of 2013 compared to the same period a year ago and 21.1% from the second quarter of 2014. It’s the lowest level since the 4th quarter of 2006! The California Association of Realtors reported that 85.8% of homes are now equity home sales, up from 62.7% of sales last year. In Los Angeles County distressed sales are 14% of all sales, down from last month’s 15% and less than half of last September’s 37%. C.A.R. also reported that inventory levels improved for the fifth straight month but is still well below normal. The Unsold Inventory Index for equity sales inched up from 3.1 months in August to 3.5 months in September.

The National Association of Realtors reported that existing-home sales dropped in September declining 1.9%  to a seasonally adjusted annual rate of 5.29 million in September from a downwardly revised 5.39 million in August. The median price of $199,200 was an increase of 11.7% from a year ago. Housing inventory in September remained flat at 2.21 million for-sale existing homes, representing a 5-month supply of homes at the current rate of home sale, up from the 4.9-month supply reported in August but down from a 5.4-month supply a year before. Home prices posted their 10th straight year-over-year increase in the double digits, up 11.7% compared to September 2012.

Cash buyers continue to be a huge part of the market. According to a report from RealtyTrac, 49% of all home purchases in September were all-cash deals, up from 40% in August and 30% in September 2012. I don’t know that RealtyTrac is accurate. This seems hard to believe.

Stocks were strong in the first full week after the government shutdown marking a third week of gains for the Dow and S&P 500. The Dow continued its upward swing closing at 15,570.28, up 1.5% over last week’s 15,339.65 close. The Nasdaq closed at 3,943.36, a gain of 0.74% from last  week’s  3,914.28 close. The S&P 500 had a record week, closing at 1,759.77 up 0.87% from last week’s  close. The 10-year treasury note closed Friday at 2.53% down from  2.6% last week.

There were also more positive economic indicators this week. The Commerce Department said that orders for durable goods rose 3.7% in September, above the 0.2% gain in August, and that U.S. companies in many key sectors of the economy, ranging from autos to pharmaceuticals, boosted the amount of inventory on their shelves which is a sign that they believe more people will be buying. Wholesale inventories rose 0.5% in August vs. July, which was stronger than the consensus forecast of 0.3%, according to Barclays which has upped its third-quarter 2013 GDP estimate by one-tenth to 1.9%. However the government shutdown has had an impact on how people are feeling about the economy. The University of Michigan’s gauge of consumer sentiment fell to 73.2 from 77.5 in September for the third straight month after reaching a six-year high of 85.1 in July.

Syd Leibovitch

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