mortgage

No Improvement Yet

By Bill Starrels

July 2008

The economic news continues to be less than upbeat. The stock market continues to struggle, and was recently declared a bear market. Oil continues to reach new highs. Employment numbers are not pretty.

The July 3rd employment report showed the economy shed 62,000 jobs in the month of June. The drop for the month of May was adjusted higher from 49,000 to 62,000 jobs lost for that month. The unemployment numbers remained unchanged at 6.5%. The total number of jobs lost this year is 438,000.

Weekly initial jobless claims topped 400,000 reaching 404,000 in late June. This number was significantly higher than economists were predicting. The overall four week total was even higher than the period shortly after hurricane Katrina in October 2005.

Factory payrolls dropped by 33,000 workers after a decline of 22,000 in May. Most economists were expecting a number of 30,000 or less.

The housing slump was accentuated by builders’ payrolls that declined by 43,000 after dropping 37,000 in the prior month. The total number of construction jobs lost since September 2006 is 528,000.

Starbucks announced the closing of 600 stores which will result in the loss of 12,000 jobs.

Overall workers average hours remained constant at 33.7 hours a week on average.  Workers’ average hourly wages increased to $18.01, up six cents, or 0.3 percent.  Year over year the increase in wages is the smallest twelve month increase since January 2006. These forecasts were in line with expectations.

Oil topped $145 a barrel in early July. Gasoline was far north of $4 a gallon for regular fuel. Diesel was approaching $5 a gallon. Car and truck sales are quite slow with double digit decline in sales being the norm in recent reports. SUV sales are dismal.

In normal times when the economy is struggling and home prices are declining, mortgage rates would be going lower. Unfortunately these are not normal times.  Mortgage rates remain in a tight neighborhood with rates mostly in the sixes.

The only bright spot are the indexes used for many popular adjustable mortgages. When many adjustable rate mortgages adjust this summer, the rate will often be steady or declining because the index values of LIBOR and Treasuries are relatively low, allowing for a lot of homeowner’s rates to stay low.

This current trend is likely to continue for at least the near term.

Bill Starrels is a senior loan consultant and he lives in Georgetown. He can be reached at 703 625 7355, Email: bill.starrels@gmail.com