Tag Archives: Capital Economics

In recent months, data from the Mortgage Bankers Association, Freddie Mac, Bankrate, and other firms has shown mortgage rates steadily falling, hitting new lows week after week in some measures. However, Capital Economics contends that there is actually little evidence to suggest that this activity is translating into heavier demand. While the Federal Reserve's Senior Loan Officer Survey reported rising demand for mortgage finance in the past three quarters, this increase in demand hasn't shown up in mortgage applications for home purchase, which have remained relatively flat.

Compared to the two-year high for new home sales in May, June's figures were met with disappointment. On Wednesday, the Census Bureau reported new home sales dropped 8.4 percent month-over-month. In an IHS Global Insight commentary, economists Patrick Newport and Michele Valverde pointed out that figures for March, April, and May were all revised up, and that sales were up in the Midwest and West, but down in the Northeast and South.Thus, IHS described the report as mixed. Also, unless June ends up breaking the trend for upward revisions, a Capital Economics report said June's sales would have actually been 383,000 if the adjustments seen in previous months are added.

For the first quarter of 2012, the Census Bureau reported the homeownership rate dropped to 65.4 percent, which was a yearly (66.4 percent) and quarterly drop (66.0 percent). Even more significant was the fact that rate had never seen such a low since the first quarter of 1997 when the rate was also 65.4 percent. In a report, Paul Diggle of Capital Economics wrote, ""it's plausible that tight credit, subdued confidence and many more foreclosures will drive the homeownership rate down to 64%.""

Following the news from Case-Shiller that home prices rose in April for the first time in seven months, IHS Global Insight and Capital Economics both released commentaries speculating on the unexpected news and the housing market's future. IHS attributed the uptick in prices to three factors: Current low mortgage rates, strong investor demand, and a drop in homeowners listing their homes for sale. Capital Economics pointed to tight supply conditions as a cause for the price gain and said that these conditions are unlikely to last with foreclosure and short-sale processes happening quicker than before.

The recent softening of economic activity will not stop the country's housing market recovery, Capital Economics said in a report Wednesday. The US Housing Market Analyst for Q2 2012 speculated that modest recovery in the housing market will not only continue for the rest of the year, it will spread and cause an increase in house prices. With the modest upturn in home sales going on, Capital Economics revised its house price forecast to show gains of 2 percent in 2012 and 5 percent in 2013.

Negative reports on the economy may be shaking up confidence, but Capital Economics released a report Friday stating that in their view, the foundations for a sustainable recovery are still in place. The employment situation in the U.S. and issues overseas such as the euro-zone crises are all taking a toll on the economy and consumer confidence. Yet, there are still reasons to make the argument that the recovery is not going to be derailed. Home sales and prices have increased, and mortgage affordability continues to be at an all-time high.

Following the release of the first quarter 2012 Case-Shiller Home Price Indexes, economists from IHS Global Insight and Capital Economics offered their take on whether the data indicates the market is stabilizing or still searching for a bottom. Patrick Newport and Michelle Valverde, U.S. Economists for IHS Global Insight, said it depends on where you are since prices are driven by local forces such as foreclosure rates and job growth.

The economy added 115,000 jobs, and the unemployment rate dropped to 8.1 percent. With an upward revision of 53,000, March's payroll growth is now 159,000. Economists expected payrolls to grow by 165,000 for April. The government sector cut 15,000 jobs, and the private sector added 130,000 jobs. With these reported numbers from the Bureau of Labor Statistics, economists from IHS Global Insight, Capital Economics, and Fannie Mae provided their own analysis on what the numbers really mean and what they may indicate for the future.

With numbers from a CoreLogic report revealing 22.8 percent of borrowers are underwater, principal reduction has been eyed as a key solution to keep borrowers in their homes. The Center for American Progress has released a report detailing solutions to the ""moral hazard"" issue. One is to make principal reduction a one-time program open to borrowers already delinquent; another is to open the program only to current borrowers who are at-risk of default; and the third is ""shared appreciation"" modifications.

Even with recent reports of rising mortgage rates and falling home prices, Capital Economics stated it still expects the housing recovery to be under way. The research firm cites two reasons in a report on why mortgage rates won't threaten recovery: rates can only rise so far when tighter monetary policy is still years away, and homes will still be affordable even if mortgage rates were to rise back to normal levels. Capital Economics notes that over the last six months, total home sales have increased by 13 percent.