Economic Overview July 30th!

OVERVIEW ~ July 19 through 23 ~ The Dow Jones Industrial Average (DJIA), like most market indicators, made small gains as investors waited with concern for the first report of results from ”stress tests” for European banks. If an unexpectedly large number of banks were found to be unsafe, the markets would have likely reacted negatively. The results of the tests, however, did little more than affirm what investors already knew. Only a few banks were found to be truly weak, and they had already been named. On Friday, when the announcement was made, the news about the “stress tests” therefore resulted in what many analysts called a “relief rally.” The DJIA rose by 1% on the day, reaching 10424.63, having edged up enough over the week to climb 3.2% over the prior week’s closing figure. The rise was aided by good news from corporate earnings reports, notably with General Electric raising its quarterly dividend by 20%.

FOCUS ~ Mortgage interest rates, meanwhile, continued to edge lower. The 10-year Treasury note held its ground at 2.99%. The Freddie Mac average 30-year mortgage rate shed another basis point, ending the week at 4.56%. And the HSH Associates average of conforming and jumbo rates fell 8 basis points to 4.90%, Extremely attractive financing rates, in other words, became even more enticing during the week.

But low rates may not be motivating buyers to write up offers on residential real estate. While some experts forecast a surge in home sales as a result of the June 30 closing deadline for the home buyer tax credit, the National Association of Realtors ® reported that existing home sales actually fell 5.1% in June, although up 9.8% over June 2009.

Why aren’t lower interest rates bringing more of a boost to real estate purchase activity? There is no easy answer to this question, but a large number of factors can be cited. Many homeowners have refinanced already, and don’t need to refinance again at this level. Others, especially those whose home’s market value has fallen below the existing loan balance, simply cannot engineer a workable refinance. These factors, along with concerns about job stability, are keeping many people from acting on these interest rates. Still, the rates are extraordinary, and those who can will most likely take advantage of them sooner than later if confidence in the economy improves.