Economic Update: Week of 3/22

Economic Update: Week ending 3/22

The federal reserve chairman, Ben Bernanke  announced this week that the fed will continue bond purchases to keep long term interest rates down until substantial improvement in the employment market is seen. With that said 226,000 jobs were added in February and over the last 5 months the average has been 200,000 jobs added per month. The unemployment rate dropped to 7.7%, the lowest level since 2008. Bernanke also said that when the fed decides to pull back that they can act quickly and begin buying bonds again if the economy begins to stall. His suggestion of pulling back on bond purchases and letting long term interest rates rise to market levels mark a change in the long term foreseeable future comments made earlier this year. I believe we will see interest rates rising soon, as all indicators including employment have shown gains above what has been expected. This could begin as early as the next fed meeting.

In other news Cyprus had a run on its banks, which while newsworthy, had no impact on our economy or markets. Had it not been slow news days this would not have had much coverage as Cyprus is such a small economy. As far as home sales news:   US home resale’s were up 10.2% and the median  price index showed a 11.6% year to year increase for February, lower than California but huge for US! Home builders reported that they can’t find land to purchase and can not get zoning and building approval quick enough to meet demand.

Mortgage rates this week fell back toward historic lows after moving up a week ago. The average rate on 30-year loan fell to 3.54% this week, from 3.63%, a high for the year last week, and the highest rate since August 2012. The rate on the 30-year loan has been below 4 percent now for a full year and is expected to stay under 4 percent for all of 2013 based on Freddie Macs adjusted upper end of its inflation range forecast.   The 15-year loan averaged 2.72% this week, from 2.79% last week.  The lowest mortgage rates in decades are spurring more home purchases and refinancing. That’s really helped the broader economy. Increased sales are also pushing home prices higher. As the spring home-buying season begins, low mortgage rates will entice more people to buy homes or refinance. The National Association of Realtors reported Thursday that sales increased 0.8% in February from January to a seasonally adjusted annual rate of 4.98 million. That was the highest sales pace since November 2009, when a temporary tax credit for home buyers had boosted sales. However, some people still are unable to take advantage of the low mortgage rates, either because they can’t qualify for stricter lending rules or they lack the money for larger down payment requirements. First-time buyers made up just 30% of sales in February. In more stable economies, they make up more than 40%  of sales.