Mortgage Rate News

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Sure, the housing market is an important part of the economy. But there are other considerations as well. Indeed, without jobs and an expanding GDP, the housing market is likely to continue to languish. Today’s data releases have caused some concern about the economy.

Unemployment

Unemployment claims continue to rise. The pace of the increase had been slowing, but this week an increase has been seen in jobless claims. However, the claims rose by 15,000, which indicates a relatively small increase, leading to the hope that the economy might still be on track for recovery. Bloomberg reports on what the labor market means for the recession:

“We’re in the prelude to the end of the recession,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who accurately forecast the drop in GDP. “The stimulus will build steam, but it’ll be a pretty tepid recovery.” The loss of jobs “is one factor holding back consumer spending,” he said.

Until employment picks up, consumer spending will remain weak. Additionally, the current state of the labor market may affect housing. Housing can’t pick up without the employed. Additionally, if job losses continue to mount, there is likely to be an increase in foreclosures down the road.

GDP

Another important economic release for today was GDP data. Quarter 1 data showed that GDP contracted by 5.5%. This is somewhat discouraging, but the news comes with a silver lining. GDP had actually been expected to shrink by 5.7%. This means that GDP was in better shape than expected. The news, when combined with the information from the relatively flat labor market, indicates that a slow recovery might begin soon. However, the economic data makes it clear that the end of the recession, and the subsequent reversal of the current situation will comes quite slowly.

The economic news has not been enough to cause problems for the stock market, however. Other considerations are driving U.S. stocks higher right now, and that is something that might add a little confidence to the financial markets in general.

The Federal Reserve released its quarterly report on household wealth earlier this morning. In the first quarter of 2009, household wealth dropped. This represents the 7th straight quarterly drop, keeping in line with losses during the recession. MarketWatch reports on the drop in household net worth:

Household net worth fell at a 9.9% annual rate in the first three months of the year to $50.4 trillion, the lowest in more than four years. Net worth — assets minus liabilities — peaked at $64.4 trillion in the spring of 2007, the Fed said in its quarterly flow of funds report. …

Households saw their assets drop by $1.4 trillion in the first quarter, including a loss of $448 billion on their real estate and $1 trillion on their holdings of corporate equities, mutual funds and pension reserves.

As you can see, a substantial portion of the losses in household net worth are related to home values. As home values fall, so too does net worth. Of course, even more losses were logged as investment portfolios fell. However, the silver lining to the investment portfolio story is that the stock market is expected to recover over the long term, so those who continue investing will see dramatic gains later.

With the real estate losses, it underscores an important point about a primary residence: It should be viewed more as a long-term purchase than as an investment. Besides, by the time you pay interest on your mortgage for any number of years, you are most likely to find that any “investment” return has been eaten away. It is a better idea to think of your primary residence home as a purchase, rather than an investment. At any rate, even if you think of it as an investment, you should remember this truth: Any investment can decline in value. Real estate is not immune to the risk of loss.

Today, the main economic data release is U.S. non-farm payrolls data for the month of May. Economists had predicted that the U.S. economy would lose 525,000 jobs last month. However, when the job loss numbers were announced today, they came in at 345,000. This is even lower than the revised 504,000 job losses that came in April. Even though the job losses are still steep (and bring the unemployment rate to 9.4%), the fact that unemployment is slowing is an indication of improvement.

Indeed, with this dramatically lower unemployment number, some economists and analysts are declaring that the recession has come to an end — or at least it will end soon. Speculation that the economy would stop contracting by the 3rd quarter of 2009 is more justified than it has been since such predictions were first made. There is hope that eventually job losses will dwindle and reverse, helping add to an economic recovery that can begin by the first quarter of 2010.

Other information that has indicated that the worst of the recession is over is pending sales data from the U.S. Also, existing home sales are on the rise. Even though foreclosures continue to cause problems in the housing market, home sales are on the rise and may eventually balance things out. Additionally, if the employment situation improves, it is likely that the tide of foreclosures will slow as well. With fewer people losing their jobs, it means that fewer people will be subject to a situation that prevents them from making mortgage payments.

If the indications are correct, and the end of the recession really is imminent, then we have already passed a bottom. This illustrates one of the dangers of trying to time the market, buying at the bottom. Rarely is the bottom recognized until it has passed. Instead, if you are in a good position to invest or buy, and the deals are good, make your move. Even if you aren’t buying at a bottom, you are still getting a good bargain.