Mel's Blog

April 4, 2012 Market News

April 4th, 2012 11:09 AM by Mel Samick

Twelve rock star sized mansions or four of the top Major League baseball teams (by annual salary) or six top Hollywood movie productions or two White Houses or 182,857,143 boxes of Girl Scout Cookies is what $640 million can buy. Friday's Mega Millions drawing was the largest lottery the United States has ever witnessed. What would you buy with a payout from a $640 Million jackpot?

While many Americans dreamed of winning the largest lottery, others went back to work. The number of Americans who filed for jobless benefits fell by 5,000 last week. The four- week average fell to 365,000, a decrease of 3,500. While this is a four-year low, Ben Bernanke started the week by saying that the improvement in employment may not be sustainable. He admitted that he does not fully grasp what is going on in the employment market. He believes that what is happening is a reaction to the excessively large layoffs that have occurred during the recession. Further improvement may depend on faster economic growth. He advised to, "...remain cautious and see how the economy develops."

As unemployment continues to fall, personal spending continues to rise. Personal Spending rose .8 percent in February while Personal Income only increased .2 percent. Most of the increase in spending is due to higher energy costs. The increase in spending also lowered the Personal Savings rate in February to 3.7 percent from 4.7 percent in December of 2011. As we all know, spending cannot continue to outpace income. Spending constitutes 70 percent of the nation's growth, so income better catch up in order to sustain the recovery; much to Mr. Bernanke's point earlier in the week. The price index for Personal Consumption Expenditures increased 0.3 percent. This caused disposable income to fall .1 percent. The core Personal Consumption expenditures, which excludes food and energy, only rose .1 percent. This is the number the Federal Reserve examines when deciding whether or not to raise interest rates. Another positive sign for the economy is that Durable Goods Orders rose 2.2 percent in February. Orders have increased 13.5 percent over the past year. This shows healthy demand across most American industries.

Mortgage Applications fell this week, but Purchase Applications rose. For the week ending March 23, new mortgage applications fell by almost 3 percent. Purchase loans accounted for 28 percent of all new application, the highest since July of 2011. ARMs accounted for just 5.4 percent of new applications. The National Association of Realtors' index of Pending Home Sales jumped 9.2 percent in February from a year ago. Investor purchases of foreclosed homes are greatly fueling this increase.

Senator Sherrod Brown, D-OH, proposed legislation to make banks respond to short-sale requests within 75 days. The new bill would require the banks to accept, reject, or make a counter-offer in writing within 75 days. The Consumer Financial Protection Bureau will issue a final rule by the end of June to define what constitutes a "qualified mortgage." This is important because residential loans will need to meet an "ability to repay" standard (Qualified Mortgage) test. The QM standard will effectively define the broader market for residential loans, with QRM (Qualified Residential Mortgage) loans being a narrower subset of the overall market.

Mel

Information Provided by NYCB Capital Markets

Posted in:General
Posted by Mel Samick on April 4th, 2012 11:09 AM

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