Market Minute - October 17, 2019

Published | Written by Pamela Briggs

From the The California Association of REALTORS®, here is your weekly economic and market news that matters to real estate and housing...

Overall Housing/Real Estate Market

The California Association of REALTORS® (CAR) recently released their 2020 forecast. Low mortgage interest rates will support California’s housing market in 2020 but economic uncertainty and affordability issues will slow sales growth. Still, CAR’s updated forecast is more optimistic for both sales and prices than in 2018.

Construction spending was up slightly in August to a seasonally adjusted annual rate of $1.29 trillion after a revised flat reading in July. Much of the gain came from residential construction spending.

Macro Economy

The unemployment rate falls to 50 year low to 3.5% in September. However, rising uncertainty combined with fewer workers to bring in off of the sidelines have kept new job creation subdued. Overall, the economy added just 136,000 jobs last month. This is consistent with other indicators suggesting slower, but modest growth ahead.

U.S. manufacturers experienced the worst month since 2007-2009 Great Recession as the index fell from 49.1% in August to 47.8% in September. In fact, this is the index’s sixth consecutive drop of which the last two, have been in contractionary territory below 50%, signaling that business conditions are getting worse.

Service sector points to slower growth ahead as non-manufacturing dropped to a 3-year low in September. This trend suggests that the economy will grow more sluggishly as services represent nearly two-thirds of all consumer spending. It is important to note that the index remains in expansion territory with a reading above 50, so it still indicates expansion, just at a slower pace.

Trade deficit widens in August as more imported goods drove the trade deficit higher last month. Although exports have been growing for two consecutive months, the increase has paled in comparison to the jump in imported goods, which rose by $1.3 billion in August. Some of this is likely due to the iPhone 11 effect, which began shipping during the month, but still represents a drag on overall economic growth nonetheless.    

Real Estate Finance

Mortgage rates on the 30-year fixed-rate mortgage (FRM) increased, but barely, to 3.65% from 3.64% the week prior. With the fed lowering rates and worries about a slowing U.S. economy, the outlook for rates remains flat-to-down as treasuries have become relatively more attractive to equities as a result of uncertainty because bond prices will have upward pressure as investors seek safety, which means downward pressure on rates.

Mortgage applications bounce back as rates dipped back down, mortgage applications increased by 8.1% in recent weeks. As expected, much of this jump was associated with refinance applications, which were up 14%. Unfortunately, new purchase applications only rose 1%, which is consistent with the lackluster response of the market to near historic lows in rates.

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