Monday, January 31, 2011 10:06 PM
Economic News And How It Affects Real Estate Mortgage Rates | Youtube Video
There are several economic reports released this week from our federal government that can affect real estate mortgage rates and consequently the real estate market. The bottom line, bad news is traditionally good news for the bond market pushing interest rates down. Good economic news is bad news for the bond market resulting in higher interest rates. (Good news tends to push stocks higher and bad news tends to push bond prices higher which in turn will cause a lower rate of interest or lower rate of return.) The bond markets does not always react accordingly, at the same time the results mentioned indicate an interest rate direction. The following is an explanation of what this week's economic reports are, what do they mean, and how they may affect interest rates.
January's Personal Income and Outlay (disposable income) data is released on Monday and is an indication of the consumer's ability to spend and current spending habits. Two thirds of our economy is based on consumer spending habits. The current forecast is for income to increase .5% and spending to rise .6%. Increases that are smaller than expected would tend to drive interest rates down.
Institute of Supply Management manufacturing index (ISM) is released on Tuesday. This index tracks the manufacturing trade executive's opinion of their business condition. A reading of over 50 means that more than half of those surveyed have a positive business outlook. A reading of 57.5 is forecast and anything more than that is good news for the stock market and bad news for interest rates.
Thursday release of December's Factory Orders data is a measurement of the manufactuing sector strength with both durable goods orders and nondurable goods orders. This report will be considered one of the least important of the week. Analyst are expecting a .7% decline in new orders. Less decline (or an increase in new orders) is good news for the stock market and bad news for bonds and vice versa.
Friday is the most important day for economic data with the release of January's Unemployment Rate from the Labor Department. The employment rate shows what percent of the work force that is seeking employment is unemployed. (Does not reflect those who are underemployed or who have left the employment market). Analyst are forecasting the unemployment rate to rise from 9.4% in December to 9.6% in January. Mortgage rates tend to move higher if results are better than expected (decreased unemployment rate). Unemployment is always a lagging indicator of the economy because businesses are slow to add labor as the economy recovers. The unemployment rate is possibly the most important factor that affects the real estate market more so than interest rates. The people without a job or who fear losing their job typically do not buy houses.
RE/MAX Realtec Group
David Craven majored in Economics at Eastern Kentucky University where he received a Bachelor of Business Administration and is REALTOR with RE/MAX Realtec Group.