Weekly Mortgage News for November 25, 2011

This weeks top stories include how sales of existing U.S. homes rose last month by 1.4%, how U.S. growth was downgraded to 2% for the third quarter of this year, how retail sales in Canada were up in the month of September, how U.S. jobless claims were up again and how Canadian wage gains have been on a steady decline since April of this year.

U.S. existing home sales up 1.4%

Previously occupied home sales were up across the U.S. last month by 1.4% but sales still remain at depressed levels with more and more deals being canceled at the last minute. This shows that even consumers that were looking at purchasing are now worried that the housing market may fall further.

The rise of 1.4% witnessed last month still show levels well off of the 6 million marker, which is where the signs of a healthy housing market begin. This year’s sales numbers are slightly ahead of last year’s sales, which was the worst year on record in 13 years. Although the numbers are tracked when closing takes place, it seems that numerous deals are falling apart just before closing. 33% of realtors stated that they have lost a deal at closing, which is up from the 18% in the month of September.

Even though we are two years past the official end of the recession, a majority of people are unable to qualify for loans or meet the demands of a higher down payment requirement. Consumers with the credit and income to purchase are also holding off with fears of home price depreciation being the top of mind. There has also been a large decline in first time home buyers as consumers that were thinking about purchasing have been put off by their experience with the global financial meltdown.

Lower housing prices and record low mortgage interest rates have not been enough to hold up sales as economists continue to lean towards the idea that home prices will fall another 5% by the end of this year. Forecasts for housing do not point at a rebound until at least 2013. With the large rate of foreclosures, re-sale home are now much cheaper than new builds with new homes costing roughly 30% more than an existing property. What do you think of the U.S. housing market? Will there be a rebound? Is it a good time to buy? Please comment below.

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U.S. growth revised down to 2%

Weak inventory accumulation with strong consumer spending is supporting views that American output will pick up this quarter but it`s too late for the third quarter (Q3) of this year, which grew slower than anticipated by most. Gross domestic product (GDP) grew at a 2% annual rate in Q3 of this year according to the latest figures released from the Commerce Department, which is down from the 2.5% previously reported by them.

Although the revision was below economists’ forecasts for a 2.5% rate of growth, the GDP report outlined that consumer spending and a drop in business inventories are setting the stage for a stronger economic performance in Q4. Cary Leahey, senior economist at Decision Economics New York stated, “The mix or composition of growth improved. Inventory investment was lower so firms are more likely to produce more goods going forward. And exports rose. So while you lost a half percentage point in the revision to third-quarter growth, you might easily get it back in the fourth quarter of this year or the first quarter of next.”

Current data points the Q4 growth that could surpass 3%, which is noted to be the fastest growth in the past 18 months. Next year’s growth is still to be determined as there is still failure form the U.S. super committee to agree on a resolution to secure a $1.2 trillion deficit reduction in the next 10 years. Regardless of the downward revision in GDP, the numbers are still up from Q2 where GDP had only reached 1.3%. Mr. Leahey went on to state, “The market knows the fourth quarter doesn’t look bad, but there is a considerable amount of fiscal drag coming in the near future.” What do you think? Will the U.S. economy expand in Q4? Please comment below.

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Retail sales up

Canadian retail sales rose in the month of September unexpectedly and marked the largest advance on record since November of last year. This continues to add flames to the fire that the Canadian economy will continue to show solid growth in the third quarter (Q3) of this year.

Retail sales were up 1% to $38.2 billion in the month of September according to the latest report released by Statistics Canada. This was the fifth increase in retail sales within the last six months. Scotia Capital economist Derek Holt stated, “This is a much better-than-expected retail sales report with headline sales rising at twice as fast a pace as that which was expected while core sales posted a further 0.5 per cent print. With all of our observable leading indicators now in place, we are looking for a pretty decent gain in September real GDP as an increase in housing, price-adjusted retail sales and manufacturing shipments outweigh a decline in real wholesale sales and hours worked.”

Most of the growth came from gas and motor vehicle sales, without these, retail sales were up only 0.4% on their own merit. Emanuella Enenajor of CIBC World Markets commented, “Autos were a big part of the story… however, electronics, building materials, gasoline station, clothing stores and sporting goods stores also posted hefty gains — suggesting that the back-to-school season in Canada did a bit better than most analysts had been expecting. The 0.6 per cent lift to volumes suggests that third-quarter GDP could come in around 3.2 per cent or so, aided by accelerating consumption, but mostly due to a surge in exports.”

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U.S. jobless claims rise

It seems that the U.S. labour market is gaining steam as claims for unemployment benefits held below the 400 000 maker for the third consecutive week. New U.S. claims for unemployment benefits were up but just slightly as initial claims for state unemployment benefits rose to a seasonally adjusted 393 000 from an upwardly revised 391 000 the week before according to the U.S. Labor Department.

Economists had previously predicted that claims would reach the 390 000 marker with the U.S. economy gaining traction in the second half of this year. Economist felt that the economy would expand at a 2% annual rate in Q3 of this year with further traction in Q4. If this happens, it could possibly help the U.S. avoid another recession. There are still large risks to a U.S. recession within the next year, mainly if the government allows extended unemployment benefits and payroll tax cuts to expire at the end of this year.

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Canadian wage gains fall

A new report from Statistics Canada states that real wages in Canada are on the decline as weekly payroll gains continue to fall to levels witnessed during the recession. Average weekly earnings for non-farm payrolls fell 0.3% in the month of September, from the previous month, to $827.75

On a year over year basis, the increase in wages has gown down to 1.1% from the same time last year and is noted as the lowest pace of improvement since November of 2009. When looking at the figures, Canadian wages are actually declining, as the year over year increase is roughly one third of the inflation rate. The increase in average weekly earnings had reached 4.1% in April of this year but has been on a steady decline since then. This is bad news for our economy because it translates to Canadians having less disposable income to purchase goods.

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