“BAD NEWS GOES ABOUT IN CLOGS, GOOD NEWS IN STOCKINGED FEET.” Welsh Proverb.
And while last week did have some negative economic reports clomping through the headlines, there was also some good news tiptoeing around.
The unemployment line is getting even longer, as Initial Jobless Claims showed that the number of people collecting benefits reached a record high of 5.11 million. Not surprisingly, Consumer Confidence fell to its lowest reading since records began in 1967. The sour report indicates that the fear of losing one’s job has made the consumer more reluctant to spend.
Gross Domestic Product (GDP) is the broadest measure of economic activity – and for the 4th quarter of 08, came in worse than expectations and at its lowest reading since 1982. You can see the comparison for the last four years in the chart below.
The news on the housing front was also gloomy; as New Home Purchases dropped to the lowest level since data collection began in 1963. Existing Home Sales for January came in lower than expected; however, that number was probably influenced by buyers waiting to see what the government’s Stimulus Plan might have in store for them.
Pasadena’s housing and real estate market has been on fire during the month of February. Multiple offers are seen in the first time home buyer range of homes under $450,000. Pasadena home buyers are out in droves looking at homes as they come up on the market.
The Treasury Department announced on Friday that they plan to take a 36% stake in Citigroup by converting $25 Billion of preferred shares into common stock. The move will dramatically dilute shareholder value, but should help bolster the struggling bank’s capital base.
Some good news from Reuters, as they released the results of a survey of 47 professional forecasters, predicting that the economy will begin to recover in the second half of this year. Additionally, the Chicago Purchasing Managers Index was better than expected, and being a forward-looking indicator, gives another bright spot of hope down the road.
Despite the negative news, Bonds and Pasadena home loan rates were not able to make improvements over the course of the week, and ended a bit worse than where they began.
Forecast for the Week:
The week ahead will be bookended with two very important economic reports, and could be volatile in between with more details on the Homeowner Affordability and Stability Plan due to be released on Wednesday.
Among the details to be released is information on whether loans that are in good standing, and which are already guaranteed by Fannie Mae and Freddie Mac, will be able to refi, even if the loan balance is 5% greater than the home’s current value. This will determine the ability of many Pasadena homeowners to benefit from lower rates.
Currently many homeowners would love to cut their monthly expenses with the lower home loan rates available today, but are unable to due to the drop in home values. This new provision could help many people solve that dilemma.
Monday brings the details on the Fed’s favorite gauge of inflation, the Core Personal Consumption Expenditure (PCE) index, found within the Personal Income report. Given the recent concerns on deflation, it will be interesting to see what this report shows.
On Friday, the Labor Department releases its Jobs Report for February. Last month’s report showed that 598,000 jobs were lost in January, and that about 3.6 Million jobs have been lost since December 2007. Given the number of new Initial Jobless Claims filed last month, Friday’s Jobs number probably won’t be a pretty one.
Weak economic news normally helps Bonds and home loan rates improve, as money flows out of Stocks and into Bonds. However, Bonds and Pasadena home loan rates worsened last week, despite the weak economic news, due to tough technical resistance and the enormous supply of Bonds being put out on the market.
Stay tuned for next Monday’s Pasadena real estate and economic forecast.
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