Destin Real Estate News Blog

With little US economic news this week, investors focused most of their attention on Europe, where Greece is attempting to avoid a debt default. A lack of progress in Greece late in the week caused a minor flight to safety, and mortgage rates ended slightly lower than last week.

For most of the week, it appeared that Greek officials were on track to deliver a package of austerity measures required for Greece to receive additional aid. The negotiations took an unexpected step backward on Friday, however, as Greek political leaders agreed on an austerity package on Thursday, but European Union (EU) officials stated that Greece will not receive additional aid until the Greek Parliament passes the package. Given the resistance among the Greek people, this is not a sure thing, and it extends the uncertainty about whether Greece will be able to avoid a debt default. As a result, investors shifted to relatively safer assets, including US mortgage-backed securities (MBS), which helped mortgage rates and hurt stocks.

In a light week for US economic data, the Jobless Claims report stood out. Weekly Jobless Claims unexpectedly dropped to 358K. Following several years of readings consistently above 400K, weekly claims have been mostly under 400K over the last couple of months. In the past, readings in this range have been consistent with an improving labor market. In January, the Unemployment Rate dropped to the lowest level since February 2009, and the recent Jobless Claims reports provide additional evidence that the labor market is moving in the right direction.

Also Notable:

• The four-week average of Jobless Claims fell to the lowest level since April 2008
• The US Trade Deficit increased to a six-month high
• The Dow stock index climbed to multi-year highs
• The European Central Bank (ECB) made no change in rates

The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales will be released on Tuesday. Retail Sales account for about 70% of economic activity. Industrial Production, another important indicator of economic growth, will come out on Wednesday, along with the detailed FOMC Minutes from the January 25 Fed meeting. Housing Starts will be released on Thursday. Import Prices, Philly Fed and Empire State will round out the schedule.

An improving US economic outlook was negative for mortgage rates this week. Reduced concerns about Europe also caused a partial reversal in the flight to safety trade. As a result, mortgage rates ended the week higher.

Early in the month, the December Employment report showed a larger than expected increase of 200K jobs, and the Unemployment Rate continued to move lower. This week, Weekly Jobless Claims fell to the lowest level since April 2008. The labor market is one of the most important factors in the health of the economy, and many investors now view the outlook as brighter than it has been since the financial crisis began. If this is the case, it will be great news for the economy, and job gains will increase the willingness and the ability of people to purchase homes.

The Housing sector data released this week was encouraging as well. January Existing Home Sales increased 5%, while the inventory of unsold homes declined 9%, to the lowest level since March 2005. December Housing Starts for single-family units increased 4%, and Building Permits for single-family units rose 2%. Finally, the January NAHB Home Builder confidence index rose for a fourth consecutive month to the highest level since 2007. Improving economic conditions, high affordability levels, and low mortgage rates provide solid reasons to be optimistic about the housing market.

Also Notable:

• Core CPI inflation was 2.2% higher than one year ago
• Existing Home Sales rose to the highest level in eleven months
• The Treasury will auction $99 billion in 2-yr, 5-yr, and 7-yr securities next week
• Greece moved closer to reaching an agreement with its creditors

The most highly anticipated economic news next week will be Wednesday’s Fed announcement. Investors will be looking for hints about whether the Fed will provide additional monetary stimulus. The most significant economic report will be Friday’s GDP data for the fourth quarter. GDP is the broadest measure of economic activity. Before that, Pending Home Sales will be released on Wednesday. Durable Orders and New Home Sales will come out on Thursday. Leading Indicators and Consumer Sentiment will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.