Mel's Blog

August 15, 2012 Market News

August 15th, 2012 9:14 AM by Mel Samick

The Olympics are over amid fanfare and fireworks and the spectacle has successfully overshadowed any gloomy news coming from the European economy. Markets have enjoyed the quiet few weeks since there has been little significant good or bad news to cause disruption. The Dow slowly crept up comfortably over the 13,000 mark and interest rates are inching back up from all-time low levels last month. Usain Bolt and Michael Phelps ensured that they are remembered as legends in the world of sports, while new Republican V.P. pick, Paul Ryan, gave new and possibly constructive energy to the presidential campaign. The focus shifted away from the market to other topics and it may be a good thing for the market to take a little break after the turbulent and hot summer. With elections and the fiscal cliff looming large by the year-end, this winter promises to be turbulent again.

At last, some consistent good news from the housing front. Fannie Mae reported net income of $5.1 billion in the second quarter of 2012, compared with net income of $2.7 billion in the first quarter of 2012. These Government Sponsored Agencies, which were once written off, seem to be coming back into contention. The company's continued improvement in financial results in the second quarter of 2012 was almost entirely due to credit-related income, resulting primarily from an improvement in home prices, improved sales prices on the company's real-estate owned ("REO") properties, and a decline in the company's single-family serious delinquency rate. Fannie Mae had enough money to pay its dividend to the Treasury. Like Freddie Mae, it is also owned by the Federal government since 2008. Continued improvements in housing values, if paired with improvements in employment and loan performance, should result in some relaxation of underwriting standards and result in increasing home sales.

Even as the housing market shows some signs of revival, the slow pace of recovery is keeping the younger generation preferring to rent and fearful of investments in big ticket items like houses and cars. First-time home buyers in 2011 accounted for the smallest percentage of the total since 2006, according to the National Association of Realtors. The vacancy rate of U.S. rental properties is at its lowest level since 2002. Those graduating during 2009 to 2011 earned a median salary in their starting job $3,000 less than the $30,000 seen in 2007. The majority of students owed $20,000 to pay off their education, and 40 percent of the college graduates surveyed said their loan debt is causing them to delay major purchases such as a house or a car. The U.S. Consumer Financial Protection Bureau said student loans had exceeded $1 trillion level. The lack for commitment in the younger generation can be partially owed to the slow and uncertain grind of the economy. The U.S. economy shrank 4.7 percent from December 2007 to June 2009, making it the deepest and longest slump in the post-war era. In the three years since the recession ended, the economy has expanded 6.7 percent, the weakest recovery since World War II.

Some key economic data from last week were:

· Home prices rose 2.5 percent in June from a year ago and by 6 percent from last quarter, according to CoreLogic.

· Initial claims for unemployment fell to 361,000 as of August 4, down from 367,000 the prior week.

· According to Bloomberg, 83 percent of corporations gave lower guidance for the third quarter earnings.

Little economic news will be reported this week. A few important upcoming data releases for the markets to absorb include Producer Price Index on Tuesday, Industrial Production on Wednesday, and Housing Starts on Thursday.

Mel

Information Provided by NYCB Capital Markets

Posted in:General
Posted by Mel Samick on August 15th, 2012 9:14 AM

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