mortgage

Still Looking For Good News

By Bill Starrels

August 2008

As we enter the last stretch of summer, I wish there was some good news to report about mortgages and the overall real estate economy.  I will keep looking.

Mortgage rates continue to be in a tight range. Rates have fluctuated by approximately a quarter of a point over the last few weeks.

The overall economy is not improving. Consumer spending is sluggish and shows signs of declining. Unemployment, judged by weekly claims is not going down. Weekly claims continue to be north of 400,000. Major layoffs continue to be announced by Fortune 100 companies.

U.S. Consumer prices rose 5.6% in July from a year earlier. Core inflation was up 2.5%. The rate of inflation in July increased at its fastest pace in seventeen years. The markets seemed to shrug off headline number pointing to the moderation in oil and commodity prices. The thought is that inflation will moderate in the near term.

The Consumer Confidence Board reported that their Consumer Confidence Index, which had declined in June, held steady in July. The Index now stands at 51.9 (1985=100), up slightly from 51.0 in June. The Present Situation Index was virtually unchanged at 65.3 versus 65.4 last month. The Expectations Index increased moderately to 43.0 from 41.4 in June. The consumers’ outlook numbers, while slightly improved from last month, still reflect continued pessimism. In the survey, consumers who anticipate business conditions to worsen over the next six months stood at 32.4 percent, down slightly from 33.5 percent, while those expecting conditions to improve edged up to 9.3 percent from 8.5 percent in June.

A year ago the consumer confidence index stood at 112.6, which is more than double current numbers. Consumer confidence numbers in the previous recessions of 1982-83 and 1991 were gauged at numbers similar to today’s statistics. Moderating oil prices seemed to have helped stabilize the consumer confidence numbers.

Retail sales posted less than robust numbers for the latest reporting period, July 2008. Overall retail sales declined by 0.1%. These numbers showed that the June increase helped by the stimulus checks was not sustained in July.

Even Republican candidate John McCain is running television advertisements touting that Americans are “not better off today than they were four years ago.”

An interesting sign of the times is the abrupt decline in miles driven by our fellow Americans.  

“In comparing June 2007 to June 2008 figures, miles driven are down close to 4.8% or 9.6
billion vehicle driven miles on an annual basis.”

These numbers will likely have to be revised downward due to the impact of the ethanol program. Ethanol blended gasoline reduces gas mileage from ten to twenty percent. This means the actual miles driven is lower than gasoline sales indicate.  A driver who bought a thousand gallons of non-ethanol blended gas last year, now would have to buy upwards of 1,100 to 1,200 gallons of gas for the same car and the same miles driven this year due to the reduction in gas mileage in the newly blended fuel.

Mortgage rates will continue to remain in a narrow range. There is still little or no secondary market for most mortgages. Product offerings are getting tighter and underwriting standards remain strict. Do not expect to see much happy news in the mortgage markets until there is happier news in the overall economy.

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